Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

CORN EXCHANGE BILL

MERSEYSIDE METROPOLITAN RAILWAY BILL

Lords Amendments agreed to.

MILFORD HAVEN CONSERVANCY BILL

Read the Third time and passed.

SHEFFIELD CITY COUNCIL BILL [Lords]

As amended, considered; to be read the Third time.

PLYMOUTH CITY COUNCIL BILL [Lords]

Read a Second time and committed.

EASTBOURNE HARBOUR BILL [Lords] (By Order)

Order for consideration, as amended, read.

To be considered upon Tuesday 10th June.

GREATER LONDON COUNCIL (MONEY) BILL

Order read for resuming adjourned debate on Question [1st May],
That it be an Instruction to the Committee on the Bill to reduce the total sum of £868,648,000 on page 9 of the Schedule by £83,000,000 by:

(1) reducing the sums mentioned in Item 10 of Part I of the Schedule (Page 6) as follows:

(a) in column 3, by leaving out "187,700,000 and inserting" £137,700,000" and
(b) in column 4, by leaving out "£86,350,000" and inserting "£61,350,000": and

(2) reducing the sums mentioned in Item 25 in Part III of the Schedule (Page 9) as follows:

(a) in column 2, by leaving out "£60,000,000" and "£64,000,000" and inserting £56,000,000" and "£60,000,000", and
(b) in column 3, by leaving out "£30,000,000" and "£32,000,000" and inserting "£26,000,000" and "£28,000,000".—[Mr. Geoffrey Finsberg.]

Debate further adjourned till Tuesday 10th June.

Oral Answers to Questions — EMPLOYMENT

Textile Industry

Mr. Hoyle: asked the Secretary of State for Employment what are the figures for redundancies in the textile industry in the North-West in 1974 and to the most recent date for which figures are available.

The Under-Secretary of State for Employment (Mr. John Fraser): I am informed by the Manpower Services Commission that redundancies involving some 2,050 people were notified as due to occur in 1974 in the textile industry in the North-West. The figure for the first four months of 1975 is 1,400.

Mr. Hoyle: In view of the figures given by my hon. Friend and the fact that yesterday the Secretary of State for Industry also estimated that 13,000 jobs had been lost in the textile industry due to entry into the Common Market, will my hon. Friend urge upon his colleagues that action is urgently needed in the cutting of low-cost imports into this country if we are to have a textile industry in the future?

Mr. Fraser: The Government recognise the seriousness of the position, and my hon. Friend will recognise that there are difficulties about compensation and retaliation. However, I assure him that the Government take the matter most seriously.

Mr. Fletcher-Cooke: When will these figures get better, when will the trend be reversed and when shall we get a statement of Government policy?

Mr. Fraser: The present trend in sales of textiles comes from a fall in demand. The position in the United Kingdom is no different from that in other textile-producing countries. We hope that an upswing of world trade will take the textile trade with it.

Mr. James Lamond: Does not my hon. Friend recognise that that is a rather complacent answer? We had a debate in this House—and there has been one in another place—on textiles which was

almost unanimous in calling for across-the-board restrictions on imports. We have been told repeatedly that the Government are still considering the matter. Cannot we have an answer, at least before the recess, so that something can be saved of the textile industry in Great Britain?

Mr. Fraser: I am aware of the contents of those debates. Whether there is a cut in imports is a matter not for me but for other Departments. I again assure my hon. Friend that there are problems, but the Government have the matter under urgent and serious consideration.

Mr. Hall-Davis: Will the Minister recognise that what is a matter for him is that in a recession of this kind many people will leave the industry and will not return to it when trade recovers, and that the trade will be at the mercy of foreign producers? Will he recognise that if we do not remain in the Common Market it will be much more difficult to maintain employment in the textile industry?

Mr. Fraser: The hon. Gentleman may well be jumping to conclusions which are not justified by the exchanges.

Temporary Employment Subsidy Scheme

Mr. Watkinson: asked the Secretary of State for Employment if he will make a further statement on the introduction of the Temporary Employment Scheme.

The Secretary of State for Employment (Mr. Michael Foot): At this stage I am not able to add to what was said by my right hon. Friend the Chancellor of the Exchequer in his Budget Statement on 15th April 1975 about the Temporary Employment Subsidy Scheme.

Mr. Watkinson: Will my right hon. Friend accept that this is an imaginative scheme to deal with the problem of unemployment? Will he also accept that his hon. Friend, the Minister stated in the debate on the Employment Protection Bill that conversations were to take place between the TUC and the CBI? Have there been any such conversations? Is it the Government's intention that the scheme should apply only to development areas? Could it not be applied across


the country to all areas where unemployment is above the national average?

Mr. Foot: I appreciate the interest of my hon. Friend in the scheme, and I believe that it can be a very important scheme when it is developed. There have already been discussions with the Manpower Services Commission on the matter and, of course, the employers and trades unions are represented on the commission.
It is our intention to continue our consultations with the TUC and the CBI. We then hope to incorporate an amendment in the Employment Protection Bill which would cover the proposal. As for the suggestion of my hon. Friend that it should cover the whole country and should not be confined to development areas, that would make it a much more costly scheme. The present proposal is that it should be confined to development areas.

Mr. Brittan: I accept that the scheme is imaginative in the sense that it shows imagination, but will the Secretary of State explain what steps he is taking to ensure that the scheme is not just another excuse for continuing overmanning? Is that not a real danger? What steps is he taking to guard against it?

Mr. Foot: I welcome the hon. Gentleman's brilliant definition of the word "imagination". We shall have to take it to heart. These factors were taken into account when we proposed the scheme, which will be subject to debate in the House. But we do not think that we should be deterred, by the kind of consideration the hon. Gentleman has suggested, from seeing how the scheme could help in our present situation.

Mr. Rooker: Does my right hon. Friend accept that while it may be more expensive to apply the scheme to the whole country, there will be bitter disappointment in areas, such as the West Midlands, which are thought to be prosperous but which are not so prosperous and where unemployment is, in pockets, way above the national average? There will be bitter disappointment if the scheme does not cover the whole country.

Mr. Foot: I fully appreciate the view which my hon. Friend is putting. The announcement by my right hon. Friend

the Chancellor of the Exchequer in his Budget Statement was of a more limited scheme, and it is on that basis that we are making the preparations. But I have no doubt that representations will be made to us by my hon. Friend and others.

Mr. Hayhoe: Can the right hon. Gentleman say when the amendments are likely to be tabled?

Mr. Foot: Progress in the Employment Protection Bill proceedings depends not only on the Government but on the wisdom of others. I understand that we are making good progress in the Committee, and I hope that that will continue. The sooner we can reach that part of the Bill, the better we shall be pleased.

Employment Opportunities

Mr. Gow: asked the Secretary of State for Employment what is the latest trend in employment opportunities; and if he will make a statement.

Mr. John Fraser: The reduction in output has undoubtedly led to a contraction in employment opportunities. The situation should improve in 1976 and the Government are taking steps to sustain and expand the level of training so as to use the recession to prepare for the upswing.

Mr. Gow: What effect does the hon. Gentleman think there will be on employment prospects either if Britain withdraws from the Community or if we remain a member? Does he agree with the Secretary of State for Industry, who said that we had lost 500,000 jobs as a result of our membership, or with the Patronage Secretary, who said that the Secretary of State was telling downright lies?

Mr. Fraser: Perhaps I should refer the hon. Gentleman to a later Question. I will add only that these matters are hotly disputed.

Mr. Jim Marshall: Is my hon. Friend aware that employment opportunities in the hosiery and knitwear industry have suffered substantially as a consequence of the importation of low-cost textiles? Will he urge upon my right hon. Friend the Secretary of State for Trade the need for selective import quotas on hosiery and knitted textile goods?

Mr. Fraser: I do not entirely agree with the premise that imports are solely responsible for the state of the textile industry. There is a general downturn in demand which also has its effects. I shall convey my hon. Friend's suggestions to my right hon. Friends.

Factory Inspectorate

Mr. Cryer: asked the Secretary of State for Employment if he will now publish the reports from the two trial areas of the proposed reorganisation of the Factory Inspectorate.

The Under-Secretary of State for Employment (Mr. Harold Walker): As I said in my answer of 16th April 1975, this is a matter for the Chairman of the Health and Safety Commission, who has offered to meet my hon. Friend and discuss with him all the issues involved in a reorganisation of the Factory Inspectorate. In the meantime he is sending him a copy of the agreed statement prepared by the joint working party on the reorganisation of the Factory Inspectorate and will be happy to discuss the details of this with my hon. Friend.

Mr. Cryer: Does my hon. Friend agree that there is much disturbing material in the Area South report? Will he prevail on Mr. Bill Simpson to publish the report in the interests of wider public discussion on the proposed closure of 100 local offices and their substitution by only 16 area offices? Does he realise that Mr. Simpson, in spite of my individual request, has failed to provide me with those copies, so that discussions will be singularly fruitless? Does he accept that the Institution of Professional Civil Servants is still opposed to the full implementation of the proposed reorganisation? Does he not accept that we need the co-ordination of the Factory Inspectorate and not its opposition?

Mr. Walker: I fully agree that we need the co-operation of the Factory Inspectorate in any proposed reorganisation. I must point out that the ballot of inspectors that gave a seven-to-one majority in favour of the proposals was carried out by the Institution of Professional Civil Servants. As I told my hon. Friend on 16th April, the reports he is asking for are only two of a number of internal working papers prepared in connection

with the assessment of the two trial schemes, and it would be inappropriate to make them available in the way he suggested. However, the working party, which included representatives of each staff association concerned and of the official side, produced a joint report, and I see no objection to my placing a copy in the Library if that would help my hon. Friend.

Mr. Dempsey: Will my hon. Friend draw the attention of the powers-that-be to the dual control that operates in the Factory Inspectorate whereby one part of the control is done by his Department and another is done by the fire services within the local authority areas? Does he not think that in the interests of unified direction, control and enforcement it would be much better if one authority were responsible for this important and valuable service to the factories?

Mr. Walker: I think that the establishment of the commission and its executive has produced a dramatic degree of integration of the various inspectorates of different Departments. What my hon. Friend is asking for goes much beyond that. It is for the enforcement of fire regulations and so on to be brought entirely within the scope of the executive. That would require legislative change, and that is not contemplated. It would go far beyond the integration and unification that we have already achieved.

Mr. Hooley: asked the Secretary of State for Employment what discussions have taken place with the appropriate trade unions on the redeployment of the Factory Inspectorate in consequence of the Health and Safety at Work etc. Act.

Mr. Harold Walker: The Chairman of the Health and Safety Commission informs me that throughout the trial schemes close consultation with the staff was carried out through a joint working party which included representatives of all the Civil Service unions concerned and the official side. Negotiations were undertaken with the Institution of Professional Civil Servants acting for the factory inspectors and a ballot of inspectors resulted in a seven-to-one vote in favour of the new pay and grading structure linked with the proposed reorganisation. Consultations are continuing with the


unions concerned on the detailed implementation of reorganisation. As I said earlier, I am placing in the Library of the House a copy of the agreed statement on the trial schemes prepared by the joint working party.

Mr. Hooley: Is my hon. Friend aware that I very much welcome the assurance that there was full consultation with the professional bodies? Is he also aware that, quite apart from Press reports about unrest and discontent over reorganisation, I have received direct representations from those involved? Does he appreciate that there does not seem to be such happy unanimity in the situation as the ballot result seems to suggest?

Mr. Walker: I understand that there is concern on the part of some inspectors, but I think that the majority—certainly many—of the inspectors accept the need for reorganisation. I accept that the ballot was linked with pay and grading proposals, and to that extent it possibly influenced the outcome of the ballot. I ask my hon. Friend to study carefully the statement which I have placed in the Library and to bear in mind that these proposals originally stemmed from the Robens Report.

Mr. Lane: When the Minister next discusses this matter with the unions, will he explain the reason why some of the outdated restrictions on employment of women—matters which do not affect their health and safety—were swept away this morning by a decision in the Standing Committee on the Sex Discrimination Bill against the advice of the Government?

Mr. Walker: The Government provided that any necessary changes in this respect should stem from consultation with and consideration by the Health and Safety Commission. It still remains my view that that would be the right way to proceed.

Mr. Lee: Is not this reorganisation linked to a pay claim that is still outstanding, and is this not helping to weaken the morale of the inspectorate? Is my hon. Friend aware that in Birmingham we need an intensification of the Factory Inspectorate since in that area there are many small factories with largely inadequate supervision?

Mr. Walker: I accept the need for a strengthening of the inspectorate. For this

reason, when the health and safety at work legislation was before Parliament I stressed that we were making provision for a 50 per cent. increase in the inspectorate. I also referred to the way in which the ballot was carried out and to the fact that many factory inspectors accepted the need for reorganisation. This is a matter for the Chairman of the Health and Safety Commission. I am sure that the chairman will be delighted to see any hon. Member who wishes to discuss with him the nature and extent of the reorganisation. I hope that hon. Members who wish to do so will take advantage of that offer.

European Community Membership

Mr. Arnold: asked the Secretary of State for Employment what assessment his Department has made of the consequences of British withdrawal from the European Community in the areas of his responsibility.

Mr. Foot: I would refer the hon. Member to the reply I gave to the hon. Member for Wolverhampton, South-West (Mr. Budgen) on 15th May 1975.—[Vol. 892, c. 166.]

Mr. Arnold: I accept that this is a complicated matter. Is the right hon. Gentleman prepared to comment on the recent ORC poll, which appeared to indicate that well over half the firms interviewed were prepared to state categorically that they expected to employ fewer people if Britain left the European Community?

Mr. Foot: I am always a bit cautious about polls. I am even cautious about polls taken among business men, and particularly about prophecies by business men who may have made prophecies a few years ago that have not been fulfilled.

Dr. Bray: Whether we stay in the EEC or leave it, will my right hon. Friend join me in welcoming the constructive agreement reached yesterday between the British Steel Corporation and the Trades Union Congress Steel Co-ordinating Committee, which will reassure many steelworkers in his constituency and mine about their immediate future?

Mr. Foot: I naturally very much welcome the agreement reached yesterday.


We were urging that there should be discussions between the British Steel Corporation and the trade unions, and I am very glad that they have gone so far to reach an agreement.

Wage and Price Inflation

Mr. Pardoe: asked the Secretary of State for Employment what was the rate of wage and price inflation over the last three months.

The Minister of State, Department of Employment (Mr. Albert Booth): The seasonally-adjusted index of average earnings increased by 2·2 per cent and the index of retail prices by 6·3 per cent. between December and March.

Mr. Pardoe: Is the hon. Gentleman aware that it is now clear that over a period of 12 months the social contract has failed to keep the increase in the nation's pay within the increase in the nation's prices? What personal responsibility do he and his right hon. Friends accept for that? Is the Department now prepared to advocate an incomes policy based on the suggestion by Mr. Jack Jones of flat-rate increases?

Mr. Booth: I accept that, on the basis of a comparison of the movement of wages and retail prices between March 1974 and March 1975, wages have increased at a greater rate than prices. As to the responsibility for that movement in wages, I think it is true to say that the Government have had a part in it, as have private employers and trade unions. All three have a growing awareness of the economic implications, and I think it will follow from that that all three will be taking their own steps to secure a closer adherence to the TUC pay guidelines in the future.

Mr. Clemitson: Does my hon. Friend agree that two of the significant factors that have helped to push up the overall average for the past 12 months have been, first, the movement towards equal pay for women and, secondly, that lower-paid workers have on the whole done better than the average? Does my hon. Friend agree that both those factors have pushed up the overall average, whatever our view might be of whether that overall average is too high?

Mr. Booth: I agree with my hon. Friend that very large percentage

increases were required for low-paid people to move them towards the TUC low-pay target of £30. It is also regrettably the case that a number of women have required considerable increases to bring them towards the equal pay target. Included in that, however, and in addition to it in some cases, have been threshold payments which have contributed in some substantial measure to the rate of wage increases.

Mr. Hayhoe: How long can these present trends continue before complete disaster overtakes our economy?

Mr. Booth: I would hesitate to engage in exact predictions as to the nearest week or day, but I would certainly join with the TUC's judgment, contained in its recent Economic Review, that any general attempt to secure increases greater than the rise in the cost of living would be self-defeating and would contribute to the inflationary pressures.

Training

Mr. Lane: asked the Secretary of State for Employment, in view of the latest trends in unemployment, whether he will make a further statement on Her Majesty's Government's plans for more retraining.

Mr. Harold Walker: I am informed by the Manpower Services Commission that the Training Services Agency has already put into operation arrangements for ensuring that apprentices who are made redundant are able to continue their training. Provision is also being made for expanding the facilities available under the Training Opportunities Scheme so that up to 80,000 people can be trained in 1976. If the need arises for further initiatives, the commission will consider carefully what action it can take.

Mr. Lane: In spite of that, will the Minister urge his right hon. Friend the Secretary of State to spend less time encouraging strong unions to use their industrial muscle regardless of the consequences and more time building on the foundations laid by the previous Conservative Government for a great expansion of retraining, to which the present Government have not given high enough priority?

Mr. Walker: I must point out that the Chancellor's Budget provided for an extra


£20 million for the current year and an extra £30 million for the succeeding year for additional expenditure on training. I am sure that the trade unions are as aware as any hon. Member of the need for the expansion of training. I am glad to say that we are getting their full co-operation and support, particularly as regards the Manpower Services Commission, where both trade unions and employers are significantly represented.

Mr. Lipton: As regards retraining, will my hon. Friend pay special regard to the dire needs of the London area, where thousands of jobs cease to be available from year to year? In that regard London is becoming a distressed area. Will my hon. Friend go into this matter very carefully in the near future as the situation in London is very serious with the lack of employment, the lack of industrial opportunities and the lack of all sorts of other things?

Mr. Walker: We are sharply aware of the particular difficulties in London, particularly apprenticeship opportunities for young people. My hon. Friend the Under-Secretary of State and myself are engaged in careful studies and discussions on what can be done to give further assistance in London. One of the measures that are contemplated is the provision of a further skillcentre in South-East London, but we are having difficulties, as I think my hon. Friend knows, about planning permission as regards what is a very difficult site.

Mr. Scott-Hopkins: Will the Minister give details to the House of the kind of grants and loans that his Department has received, or which this country has received, from the European Community for retraining over the past 18 months?

Mr. Walker: I cannot give that information without notice, but I take this opportunity of refuting the rather foolish and ill-founded assertion in some newspapers that the Department has not fully taken up everything available. The fact is that we have taken up the full amount that is available. I say to the hon. Gentleman again that I cannot give him the figure offhand without prior notice, but if he would like me to write to give him the figure I shall be delighted to do so. Alternatively, if he tables a Question for

Written Answer I shall be very pleased to give the answer.

Mrs. Hayman: Is my hon. Friend aware that one of the greatest disincentives against women taking up opportunities for retraining is the lack of day care facilities? In its expanded programme of retraining facilities, which all my hon. Friends welcome, will the Department consider the possibility of providing day care at retraining centres so that women can truly take the opportunities that are offered?

Mr. Walker: I welcome what my hon. Friend has said. We are anxious that more women should undertake training. We are anxious that more women should take advantage of the facilities that are available and the training opportunities that are open to them. I regret that the take-up is not as great as either I or my hon. Friend would like. As regards the suggestion that she makes, I shall draw it to the attention of the Manpower Services Commission.

Employment Agencies

Mr. Rooker: asked the Secretary of State for Employment what is his estimate of the number of employment agencies or businesses currently operating in the United Kingdom which charge a fee to persons seeking employment via those agencies or businesses.

Mr. Harold Walker: No information is available upon which any reliable estimate could be given.

Mr. Rooker: Does my hon. Friend agree that there are at least two companies, which are both American-owned, on one of which I have given him information—namely, National Executive Search—which are demanding fees from redundant executives in this country for finding them jobs? The mere fact that they file their information in America to get round the laws and regulations that we want to bring in in this country should not be an excuse. We need to take early action as regards the Employment Agencies Act to close this loophole.

Mr. Walker: I am grateful to my hon. Friend for having sent me information about the companies to which he has referred. I shall look very closely to see whether they come within the scope of the


regulations that we are proposing under the Employment Agencies Act. Their position is rather uncertain at the moment. However, the company which my hon. Friend has mentioned is operating in the United Kingdom from an office based in Geneva. I understand that the Swiss Government have some stringent regulations concerning the activities of private employment agencies. We have brought this matter to the attention of the Swiss Embassy, which has undertaken to look into the operation of this company in Switzerland and its activities from its Geneva office.

Training Board Levies

Mr. Leslie Huckfield: asked the Secretary of State for Employment how many representations he has received about the policy of training board levies; and whether he will make a statement.

Mr. Harold Walker: Since my hon. Friend asked a similar Question on 9th July 1974, two letters have been received on the policy of training board levies.

Mr. Huckfield: Does my hon. Friend agree that a 1 per cent. training levy is hardly worth trying to gain exemption from and that it will hardly encourage a comprehensive pattern of training? Does he not agree that in the case of the Road Transport Industry Training Board, where garages have indicated something like a 30 per cent. reduction in the recruitment of apprentices, the whole levy policy needs serious reconsideration?

Mr. Walker: Of course, the 1 per cent. levy ceiling imposed by the Employment and Training Act 1973 was one of the issues criticised by my party when in opposition. We have this criticism very much in mind in looking towards the future development of manpower policy. I should add that even before the 1 per cent. ceiling was imposed only three of the 24 boards had a levy in excess of 1 per cent. I have said before in the House, and I repeat now, that if a board thought that a levy in excess of 1 per cent. was appropriate and necessary I should be ready to consider the matter and bring it before the House for approval. With reference to the Road Transport Industry Training Board, I do not think I have yet received its current levy proposals.

Social Contract

Mr. Ioan Evans: asked the Secretary of State for Employment what further discussions he has had with the TUC regarding the implementation by the Government and the trade unions of their side of the social contract.

Mr. Foot: I took part in the meetings of the TUC-Labour Party Liaison Committee on 21st April and 19th May when the operation of various aspects of the social contract was discussed. I am glad to say that there is continued agreement between us about the central rôle of the social contract and the need to secure firmer adherence to the pay guidelines in order to reduce the rate of inflation and combat unemployment.

Mr. Evans: I thank my right hon. Friend for that reply. In view of the fact that the Government have gone a long way to fulfil their side of the social contract, particularly as regards the social wage and the need to restrain the future rate of demand for pay increases, will the Secretary of State give serious consideration to the positive proposals put forward by Jack Jones?

Mr. Foot: Yes, I agree with the preamble of my hon. Friend's remarks and we shall certainly give careful and urgent consideration—as I am sure will the TUC General Council and others—to those ideas.

Mr. Baker: Will the Secretary of State take this opportunity to deny the rumour which was circulating yesterday—I am sure it is only a rumour—that Mr. Jones was persuaded by the Government to float the idea of pay rises on those lines so that there could be a warm and positive response by Ministers? I am sure that that is a travesty of what took place. Will the right hon. Gentleman assure the House, however, that Mr. Jones is not naïve enough to succumb to this strategy and, indeed, that the Government are not clever enough to suggest it?

Mr. Foot: I do not know where the hon. Gentleman gets his rumours, but that one is so absurd he must have manufactured it himself.

Mr. Pardoe: Is the right hon. Gentleman aware that there could not possibly be any truth in that statement, because


it is a well-known fact that Mr. Jack Jones derived his idea from suggestions put forward by my hon. Friends and myself at a time when the Conservatives were engaged in their profligate and spendthrift stage 3? Is he also aware that this is the second occasion on which Mr. Jack Jones has accepted Liberal policy, the first being the statutory minimum income? Will his Department come round to that idea too?

Mr. Foot: As for the first part of the hon. Gentleman's remarks about where Mr. Jack Jones gets his ideas, as the Duke of Wellington said on a more famous occasion, if the hon. Member believes that he will believe anything. Mr. Jack Jones's ideas are serious and will be seriously considered. That is further proof that they did not come from the hon. Member for Cornwall, North (Mr. Pardoe). As for the statement that the suggestion related to a proposal for a statutory minimum income, that is not the case and the hon. Member should not confuse the issue by making any such suggestion.

Mr. Noble: Will my right hon. Friend accept that many trade unions have already settled well within social contract guidelines, notably the textile workers, who yesterday reached a settlement which in every respect was within the social contract? Will he, therefore, press upon the Cabinet that the Government can best ensure that the social contract is observed in future by protecting the jobs of those who have acted so responsibly?

Mr. Foot: My hon. Friend has put his case very well and ingeniously. I agree with the first part of his remarks. Settlements of that nature do not receive enough publicity, so it is a good thing that he has mentioned that matter today. In regard to his comments about the textile industry, I am sure that the Government will pay full regard to the representations which have been made.

Mr. Hayhoe: At a time when unemployment is rising, would not more jobs now be available if the Secretary of State had done more to reduce the number of inflationary wage settlements and had made his side of the social contract work?

Mr. Foot: The present system is not one under which the Government are

able to lay down the law on what is or is not a proper wage settlement. One of the difficulties with which we have had to deal all through these months is to try to clear up the mess left by the Conservative Government, who tried to lay down such rules. [Interruption.] It is no good Conservative Members trying to shake their heads on this matter, or even succeeding in shaking their heads, because many settlements outside the guidelines in recent months have been due to the fact that those settlements went back two or three years into the period of statutory control.

Mr. Peter Morrison: asked the Secretary of State for Employment whether he continues to be satisfied with the working of the social contract.

Mr. Adley: asked the Secretary of State for Employment if he is satisfied with the working of the social contract; and if he will make a statement.

Mr. Foot: As I told my hon. Friend the Member for Bolsover (Mr. Skinner) and the hon. Member for the City of Chester (Mr. Morrison) on 24th April—[Vol. 830, c. 1216–19]—both the Government and the trade unions have sought to fulfil the social contract, which covers a whole range of policies. But firmer adherence to the spirit of the TUC guidelines is certainly required if we are to avoid higher unemployment and curb inflation.

Mr. Morrison: In view of the assurances given by the Secretary of State earlier this afternoon, will he say exactly how he intends to tighten up and enforce the social contract?

Mr. Foot: I did not suggest that we should tighten up the guidelines in that sense. The Government suggest—and I am sure that the trade unions are seeking to help us—that we should ensure that there is a more faithful observance of those guidelines. That is not the same as a tightening of the guidelines. I believe that that is the best way in which we should proceed. It is on that basis that we are holding discussions with the TUC, taking into account the further proposals made by Mr. Jack Jones and others.

Mr. Adley: Now that Mr. Jack Jones has joined the Chancellor of the


Exchequer and the Leader of the Opposition in recognising, however regretfully, that the social contract has failed, is not the right hon. Gentleman aware that a few of his right hon. and hon. Friends are the only ones left who believe in the myth that we are supposed to be able to control inflation? Now that inflation is running at 30 per cent., what must it reach before he recognises the problem-40 per cent. or 50 per cent.? When will the Secretary of State recognise that the Government's present proposals are stoking the fires of inflation?

Mr. Foot: Since the premise of the hon. Gentleman's question was baseless, the rest of his questions do not arise.

West Midlands

Mrs. Renée Short: asked the Secretary of State for Employment what is the level of unemployment in the West Midlands; and what steps he is taking to find jobs for those unemployed there.

Mr. John Fraser: On 14th April the rate of unemployment was 3·7 per cent. The facilities of the Manpower Services Commission are always available to help workers find fresh employment.

Mrs. Short: Is my hon. Friend aware that West Midlands Members of Parliament are very concerned about the high level of unemployment in that area'? We are particularly concerned about the recession in the car industry and about the fact that a large slice of the British home market has been taken by imported cars. Will my hon. Friend take urgent steps through the National Enterprise Board to see that the car industry is resuscitated and that alternative sources of employment are provided, particularly for young people who will be leaving school this summer and also for women who are to be retrained and who will therefore need additional opportunities following Labour legislation?

Mr. Fraser: The rate of unemployment in the West Midlands is 3·7 per cent., which is rather less than the national average. Of course the Government recognise the importance of the car industry, as will the National Enterprise Board when it is set up, and I am sure that my hon. Friend welcomes the proposals set out in the Ryder Report. The

diversification of West Midlands industry is a matter which is taken into account in the issue of industrial development certificates.

Mr. Budgen: Does the hon. Gentleman agree that one of the best ways in which the Government can help to tackle the problem is to expand their tiny retraining programme?

Mr. Fraser: The hon. Gentleman is speaking out of ignorance. The Government's training programme is greater than it has ever been before and is being further expanded. Therefore, the hon. Gentleman's comments are not at all helpful.

Wales

Mr. Tebbit: asked the Secretary of State for Employment how many people are now registered as unemployed in Wales.

Mr. John Fraser: On 14th April the number was 59,554.

Mr. Tebbit: Will the Minister turn his attention to the position of Ebbw Vale? Does not he agree that it has always been the clear policy of the British Steel Corporation in relation to Ebbw Vale that new jobs should be provided in different industries at the same time as the closures took place and jobs were lost? Therefore, is not it regrettable that the Secretary of State should have changed his view so much, apparently, in recent times from when he supported the BSC's sensible policy to a point at which he now appears to be opposing it?

Mr. Fraser: I think that the hon. Gentleman's sudden interest in Wales is a matter more of mischief than of interest. The people of Ebbw Vale will be well pleased with the representations made on their behalf by my right hon. Friend the Secretary of State.

Mr. Kinnock: Does my right hon. Friend agree that the ignorance of the hon. Member for Chingford (Mr. Tebbit) is exceeded only by his stupidity, that he has absolutely nothing in common with the people represented by the Secretary of State and myself, and that only his total ignorance of the precise situation in Ebbw Vale could lead him to believe the rubbish which has been written in the newspapers and attributed


to my right hon. Friend, and, indeed, to the men and women in Ebbw Vale, from whose agony the hon. Gentleman seeks to profit?

Mr. Fraser: I find it difficult to add to what my hon. Friend has said.

Newspapers (Editorial Freedom)

Mr. William Hamilton: asked the Secretary of State for Employment what representations he has received concerning the freedom of the Press and the closed shop following the recent discussions at the annual conference of the National Union of Journalists.

Mr. Foot: I have received 20 letters written since the National Union of Journalists held its annual conference on the subject of Press freedom and the closed shop, four of which have alluded to decisions reached at the conference.

Mr. Hamilton: Many hon. Members on both sides of the House are greatly concerned as a consequence of the resolutions passed by that conference. Will my right hon. Friend give an assurance that, as there apparently is to be a recalled conference of the NUJ, he will delay any legislative action in this matter until that conference has been called and has reconsidered its decision?

Mr. Foot: I agree with my hon. Friend that this is an extremely important question. I trust that the decisions of the House of Commons will count finally on this matter. We should not make those decisions dependent on one conference. I cannot give my hon. Friend the undertaking for which he has asked. I believe that when the matter is debated the House of Commons will see that the Government's proposal is a reasonable and sensible way of settling the question. I hope that we shall have the full support of my hon. Friend on that account.

Mr. Aitken: Will the Secretary of State say whether the vote at the NUJ's Cardiff conference has made a complete shambles of his policy on the closed shop in journalism? Will he now introduce amendments to the Bill which will preserve and safeguard free access to the Press for everybody, whether people belong to a union or not? Secondly, will he introduce amendments to ensure

that editorial independence is also preserved?

Mr. Foot: All those matters will be dealt with when we come to discuss fully in the House of Commons what we shall do. I regret that the NUJ conference at Cardiff should have turned down the idea of a discussion about a Press charter, just as I regretted it when the editors turned down the same proposition a week or two before. Therefore, I think that we must deal with a situation in which the editors, the proprietors, and the NUJ at its conference have so far shown themselves as not moving towards what we would think of as the best solution of the matter. However, I glad to see that there are moves within the NUJ to make a wiser approach in the matter. I hope that the editors and the proprietors will show the same confidence.

Oral Answers to Questions — TOURISM (MINISTER'S SPEECH)

Mr. Tim Renton: asked the Prime Minister whether the public speech by the Secretary of State for Trade on tourism on 30th April represents Government policy.

The Prime Minister (Mr. Harold Wilson): I refer the hon. Member to the reply which I gave to the hon. Member for Christchurch and Lymington (Mr. Adley) on 15th May.

Mr. Renton: Does the Prime Minister agree with the Secretary of State's comment in that speech that the Government should not expect to have to inject funds indefinitely into particular activities? What limit will he therefore put on the amount of public funds being sunk into unprofitable activities? What encouragement will he give to successful industries, such as insurance, which simply wish the Government to get off their backs?

The Prime Minister: My right hon. Friend was speaking within the context of tourism. He was speaking about the need to channel money for encouraging tourism to areas which were in need of additional tourism and which had many natural attractions, especialy the assisted areas and areas of high unemployment. As regards insurance, the hon. Gentleman will have seen that we have introduced a valuable scheme to supplement


the insurance undertaken by individuals within the tourist trade.

Oral Answers to Questions — COMMONWEALTH PRIME MINISTERS' CONFERENCE

Mr. Bean: asked the Prime Minister what reaction he has received from the other Heads of Governments at the Commonwealth Conference in Jamaica to his initiative on commodities.

Mr. Dykes: asked the Prime Minister if he will make a statement on the outcome of the recent meeting of Commonwealth Heads of Government in Jamaica.

Mr. Gow: asked the Prime Minister what representations were made to him at the Commonwealth Prime Ministers' Conference about the continued membership of the United Kingdom of the European Economic Community.

Mr. Ward: asked the Prime Minister what response he has had from the other Heads of Government at the Commonwealth Conference in Jamaica to his initiative on commodities.

Mr. R. C. Mitchell: asked the Prime Minister if he will make a statement on Rhodesia following discussions at the Commonwealth Conference in Jamaica.

Mr. Kilroy-Silk: asked the Prime Minister whether, following the Commonwealth Prime Ministers' Conference, he will make a statement on Rhodesia.

The Prime Minister: I refer my hon. Friends and the hon. Members to the reply which I gave to my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ashley) on 13th May and to the text of the communiqué of the Commonwealth Heads of Government meeting, which has been issued as a White Paper (Cmnd. 6066).

Mr. Bean: I read the final communiqué of the Commonwealth Conference with interest. I congratulate my right hon. Friend on the success of the commodity agreement. Does he agree that it is vital for the developing nations that there should be stable commodity prices but that it is also vital that there should be a policy to increase world food production?

Does he agree that there is now an opportunity for Britain to take the lead in formulating a policy on increasing world food production and to develop a policy of controlling the distribution of fertilisers?

The Prime Minister: Yes, Sir. I believe that that was a successful initiative. It received wide support, although not the 100 per cent. support of those Commonwealth countries which seek big changes in all world commodity, trade and financial arrangements. However, it received wide support from a large number of developing countries. We expressed the view that there should be a shift of resources and wealth from the advanced industrial countries to the poorer developing countries. The agreement places great emphasis on the expansion of production, especially food production, following the World Food Council. That matter will be further explored at a special session of the United Nations in the autumn and also during the forthcoming meeting this month of OECD which will be chaired by my right hon. Friend the Foreign Secretary on the first day and by my right hon. Friend the Chancellor of the Exchequer on the second day.

Mr. Dykes: Since that other well-known Socialist Prime Minister, Mr. Gough Whitlam, like other Commonwealth leaders, positively endorsed our membership of the Community at the recent Commonwealth Conference, will the Prime Minister explain what his reaction was when Mr. Whitlam made the astonishing recent utterance that he had received private messages from the Secretary of State for Trade and other anti-EEC Ministers begging him to denounce our membership of the Community, which he had been obliged to reject?

The Prime Minister: It is certainly the case that Mr. Gough Whitlam, on his visit to Britain before Christmas and again at the conference, strongly pressed his hope that the British people would vote for Britain to stay in the Community. As far as I am aware, he made no statement on the lines indicated by the hon. Genteman. Although I had a long discussion with him, he never raised the matter with me.

Mr. Gow: Is the Prime Minister able to confirm that no single Commonwealth


Government asked the British Government to withdraw from the European Community?

The Prime Minister: Yes, Sir. I spoke to practically all the Heads of Government there, and that was the strong reaction that I got. When the matter was raised by the Prime Minister of Guyana, supported by the Prime Ministers of Canada and New Zealand, the Commonwealth Conference agreed that staying in the Market would not prejudice any Commonwealth country. On the motion of the President of Tanzania, supported by others, the conference was asked to include in the statement that it was a positive advantage, and some leaders of the Commonwealth said to me that if Britain were to pull out they would feel a sense of being let down regarding their own national interests and the wider interests of the Commonwealth. The statement went on to say that they took Britain's membership, with what we have been able to achieve there, as a sign, which was pleasing to them, that the Common Market was more outward looking than some of them and some of us had feared.

Mr. MacFarquhar: If there is a "Yes" vote in the referendum, will my right hon. Friend undertake immediately thereafter to summon a meeting of the Heads of Government of the European Economic Community to discuss his initiative on commodities in the light of discussions at the Commonwealth Conference?

The Prime Minister: We have already put to the Heads of Government of the Community the proposals that we made on commodities and have discussed them with other friends and allies in other parts of the world. These matters will be further discussed—and I think that most, if not all, Community countries will be represented there—at the OECD meeting at the end of this month to which I have referred. I understand that proposals are being worked out for a meeting of Heads of Government of Community countries sometime in July.

Mr. Thorpe: Will the Prime Minister accept my apologies for not being here on 13th May to hear his original answer? Is he aware that I was commending to the steel workers of Ebbw Vale accept-

ance of the Government's policies for remaining in the Common Market? Is he further aware that the local Member seems to have shifted somewhat in that direction?
May I congratulate the right hon. Gentleman—[HON. MEMBERS: "Question."] If one is allowed by his back benchers to congratulate the Prime Minister, may I first congratulate him [HON. MEMBERS: "Question."] I hope—

Mr. Speaker: Order. It must be in the interrogative.

Mr. Thorpe: May I ask the Prime Minister whether he is aware that the initiative he took on commodities at the Commonwealth Conference was widely welcomed in the developing world, not least in the Commonwealth, as a positive initiative which is greatly valued?
Secondly, and finally, may I ask the Prime Minister, arising from the Lomé Convention, whether he will take the initiative after the referendum to see that the Nine, of whom many of us hope we shall continue to be one, summon a conference of the Heads of Government of the Community?

The Prime Minister: I tried to recall the terms of the communiqué and the discussions. I cannot remember that the movements of the right hon. Gentleman on 13th May were in any way discussed or regarded as of any importance by the Commonwealth Conference. I note that the right hon. Gentleman went to Ebbw Vale. Obviously, since he spoke there, he did not go by helicopter or he would not have got there.

Mr. Thorpe: Yes, I did.

The Prime Minister: I am delighted that he has had final success there.
I welcome what the right hon. Gentleman said on commodities. This is a matter of great importance, as he said, not only to Commonwealth countries but to other developing countries, both those which are fairly rich as a result of high commodity prices and those which are still very poor and affected by commodity and oil prices.
The Lomé Convention was wholeheartedly welcomed by the Commonwealth Conference. The right hon.


Gentleman will see the reference in paragraph 38 of the communiqué. We all said that we should now ask the Eight to join us in building on Lomé in relation to Commonwealth Asian and other Asian countries.

Mrs. Thatcher: As the Commonwealth wants us to stay in Europe, will the Prime Minister take the opportunity of repudiating the allegation by the Secretary of State for Industry that the trade link with Europe has been the cause of the loss of half a million jobs here?

The Prime Minister: I do not agree with those figures. The Commonwealth wants us to remain in the Community for all the reasons that the Commonwealth countries have stated and which I have recapitulated this afternoon. Certainly there would be serious economic problems for the Commonwealth as well as for this country if we did not stay in. It is a fact, as the right hon. Lady will know, that Commonwealth trade with Britain was seriously prejudiced by the terms of entry which were originally negotiated—notably the sugar agreement and New Zealand. The ending of the CSA was very costly to Britain last year. The Commonwealth has made other arrangements, but we have restored some of its rights, particularly regarding New Zealand and the sugar agreement countries, as a result of the renegotiations, which clearly the right hon. Lady will welcome.

Oral Answers to Questions — NATIONAL ECONOMIC DEVELOPMENT COUNCIL

Mr. Horam: asked the Prime Minister if he plans to chair the next meeting of the NEDC.

The Prime Minister: Yes, Sir. I hope to do so on Tuesday 17th June.

Mr. Horam: Now that the NEDC is clearly recovering from the battering that it received from the last administration, does my right hon. Friend agree that it has a clear rôle in central planning and the encouraging of more open debate between the Government and both sides of industry? Will he therefore encourage it to play a more dynamic and decision-oriented rôle?

The Prime Minister: I have this afternoon criticised the previous administration

for battering certain institutions, for example the Commonwealth, but I have no evidence that NEDC received a battering from the previous administration. Since NEDC was originated by the then Conservative Chancellor of the Exchequer—yourself, Mr. Speaker—it has continued to progress. The significant developments in NEDC recently have been the serious study being given on a tripartite basis to the problems of industrial investment, the problems of nationalised industry investment programmes and now, increasingly, the tripartite examination of economic questions. In a recent television broadcast, which so delighted Opposition Members, I proposed further consultations in relation to the growth of product, incomes and expenditure and public expenditure. This work has been made easier by what has been done by NEDC over the past few months.

Mr. Baker: When he takes the chair at NEDC, will the Prime Minister ask it to discuss the industrial production figures for March of this year? If he considers those figures he will find that the output of British factories in March this year reached only the level it reached in the three-day working week. To what particular aspect of his stewardship of the nation's affairs does the Prime Minister attribute this startling recovery?

The Prime Minister: NEDC does not approach these problems from the political attitude of the hon. Gentleman. It is much more constructive. The hon. Gentleman will have noticed—NEDC is certainly aware, and the figures will be deployed in the next two or three days--that it is now clear that during the serious world depression in a number of countries the fall in production from the peak of last year ranges from 20 per cent. in Japan to 4 per cent. in Britain and that, at a time of world recession comparable with the 1930s, the fall in production in Britain under the Labour Government is lower than it is in any other OECD country.

Mr. Roy Hughes: Will my right hon. Friend comment on today's report alleging that Sir Monty Finniston's statement calling for over 20,000 redundancies in the steel industry was part of a preconceived plan to shop the trade unions? Bearing in mind the despondency that this has


caused throughout the industry and in whole communities, particularly in Wales, does not the Prime Minister deprecate that sort of statement?

The Prime Minister: In answering Questions it is a tradition that there is no ministerial responsibility for nonsense appearing in the Press from time to time. I should have a full-time job in the House if I had to deal with all the nonsense that appears in the Press, including some comments which appeared this morning. For example, it was said that I shall speak in the debate on Thursday only because the reluctant debutante the Leader of the Opposition has finally agreed to speak. My right hon. Friend the Chief Whip will be aware that I told him to make no deal with the Opposition that would prevent me from speaking, whatever the right hon. Lady might finally decide to do.

Mr. Prior: In view of the dithering by Ministers this morning in Committee, will the Prime Minister make a clear statement that the Government will support—as many of his hon. Friends and the Opposition wish—the release of funds for trade unions which wish to hold union ballots by post? Will he give a firm undertaking that that is the Government's policy?

The Prime Minister: I have had no report from the Committee this morning. There has been no report to the House, but I am grateful to the right hon. Gentleman for bringing it to my attention. I certainly support postal ballots in these matters. We shall consider any suggestions made by the Committee or coming from any other source as to how that procedure can be facilitated.

Mr. Pardoe: Is the Prime Minister aware of the suggestion by the Director General of NEDC that stability of investment could be attained by bringing representatives of Opposition parties into NEDC? Does he accept the view of his right hon. Friend the Secretary of State for Prices and Consumer Protection that this procedure would help, and is he aware that it is a splendid suggestion provided that, like Mr. Scanlon, the representative of the Liberal Party holds the balance of power?

The Prime Minister: The Liberal Party can give its views to NEDC by postal

ballot arrangements. The remark that the hon. Gentleman attributes to my right hon. Friend is not correct. That was not what she said. There will always be time to consider whether the two major Opposition parties have anything to contribute to NEDC when we get the faintest glimmering from them of what is their economic policy.

Mr. Hordern: When the Prime Minister takes the chair at NEDC, will he take the opportunity to repudiate the proposals of the Secretary of State for Industry compulsorily to channel the savings of institutions into industry? Will he also take the opportunity to say that we as a country are living far beyond our means, and state what proposals he has to reduce public expenditure?

The Prime Minister: Yes, Sir. We are to debate these matters in the House on Thursday, as I suggested last week. At least we are making quite sure that there will be adequate representation on the Opposition Front Bench in the debate. I hope that we shall hear on that occasion the Opposition's proposals about what areas of public expenditure they would cut. These matters can always be discussed in NEDC, and I assure the hon. Gentleman that when I chair the next meeting I shall discuss a fairly wide range of problems of macro-economics and also problems raised in relation to my right hon. Friend.
The hon. Gentleman mentioned the funds of institutions. That suggestion has not been put forward on behalf of the Government, nor has it been put forward by my right hon. Friend. It is an idea that has been floated by a sub-committee of a sub-committee of the National Executive Committee of the Labour Party. I have made clear that it is not Government policy.

Mr. Speaker: In spite of the Prime Minister's courteous reference to a former Conservative Chancellor of the Exchequer, I do not intend to ask a supplementary question.

Oral Answers to Questions — HOUSE OF COMMONS STAFF

Mr. Speaker: Following the answer given yesterday by the Lord President to the hon. Member for Basildon (Mr. Moonman), I propose to circulate in the


Official Report details of the arrangements I shall be making to provide information about the salaries and conditions of service of the House of Commons staff. Thereafter, I shall be glad to talk to any hon. Member who wishes to raise any point arising from these arrangements.

Following is the information:
Following the Lord President's answer yesterday to the hon. Member for Basildon to the effect that I would be arranging for information relating to the salaries and conditions of House of Commons staff to be published, I set out below the general rules relating to these matters and details of the action which I propose to take in future.

General Rules
The basic salaries of all House of Commons grades are linked to the scales paid to appropriate grades in the Civil Service; and the House of Commons rates are consequently revised whenever the Civil Service rates are changed. The Accounting Officer is required to keep the complement, grading and pay of House of Commons staff broadly in line with such arrangements in the Home Civil Service; and subject to the special requirements of the House, the same applies to conditions of service.

Salaries
The Commissioners for regulating the Offices of the House of Commons have, since 1955, regularly made a report to the House in respect of each financial year. Copies of this report have been made available in the Library. I propose that in future there shall be annexed to each such annual report a complete statement of the complement of staff of the House, showing their rates of pay. I will also arrange for as many copies as are required of this annual report to be made available to Members in the Vote Office.
In advance of the next annual report from the Commissioners, I propose also to make available to Members in the same way a separate statement of the current complement and rates of pay of all House of Commons staff. This will be made available as rapidly as possible.

Conditions of Service
A general statement of the conditions of service has recently been produced by the Staff Board in the form of a "Handbook for New Staff". I am arranging for copies of this handbook to be made available to Members in the Vote Office.

Oral Answers to Questions — WELSH AFFAIRS

Ordered,
That the matter of Education in Wales, being a matter relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. John Ellis.]

ACCESS TO SOLICITORS (ARRESTED PERSONS)

3.38 p.m.

Mr. Bryan Gould: I beg to move,
That leave be given to bring in a Bill to provide for arrested persons to have the right of access to a solicitor, subject to certain conditions; and to provide for the enforcement of such a right.
Last month a young man named Peter Shilhan was released from gaol after serving 22 months of a four-year prison sentence. He was released because the Court of Appeal decided that he had been wrongly convicted on the basis of a confession extracted from him while he was held in custody and while he was denied access to a solicitor. It can hardly be doubted that if he had been advised by a solicitor he would not have signed a false confession.
This is a disturbing case, but cases like it arise only because arrested persons have no legally enforceable right of access to a solicitor. The apparent right which at present they seemingly enjoy is embodied in the preamble to the Judges' Rules. That provides that every person at any stage of an investigation should be able to communicate and to consult privately with a solicitor. This is so even if he is in custody provided that in such a case no unreasonable delay or hindrance is caused to the processes of investigation or the administration of justice by his so doing.
The Judges' Rules, however, have a curious legal status. They originated in 1906 in a letter from the then Lord Chief Justice to the Chief Constable of Birmingham. They have been developed and revised since then, most recently in 1964, but they continue to lack statutory force.
The only legal consequence of such rules and the only sanction that can be applied is that evidence which is obtained in violation of the rules is not admissible. But the judges themselves have been notoriously reluctant to enforce their own rules in this way and the Law Reports are littered with cases in which evidence obtained in breach of these rules has been admitted and the rules are thereby rendered nugatory. Most hon. Members will have had complaints brought to them by constituents


who say they have not been allowed access to solicitors. The only research on this issue, however, is that conducted in 1972 by Mr. Michael Zander, and he on that occasion interviewed 134 people selected at random who had been convicted of criminal offences. Of the 57 of those people who had asked for access to a solicitor, no fewer than 42–74 per cent.—were refused such access. This is a startlingly high proportion. It cannot be explained away by saying that there must have been undue exaggeration in the case of one or two individuals. Neither can it be explained by saying that all these cases must have fallen within the proviso, because the proviso by definition, must apply only to the exceptional case and not to the normal case.
Therefore, the picture painted by the research is one of, at best, non-co-operation and, at worst, obstruction by the police. If that picture is accurate, it is no use blaming the police, because no one can expect them to abide by guidelines which have no legal force. The police cannot be expected to comply with so-called rules which are not rules and which they see, perhaps rightly from their point of view, as being merely an obstruction of their functions. The solution is not, therefore, to exhort the police to obey non-existent rules, but to give some substance to those rules.
There is a further sense in which the Judges' Rules are ineffective. In yesterday's debate on the renewal of the powers under the Prevention of Terrorism (Temporary Provisions) Act, my right hon. Friend the Home Secretary said that persons detained under the Act would have their right of access to a solicitor guaranteed by the Judges' Rules, but many of the people detained under the Act will never come before the courts and, therefore, in those cases there will be no opportunity for the Judges' Rules to be either applied or enforced.
Confronted with this situation where the Judges' Rules provide an illusion rather than reality about the right of access, we are left, I believe, with two possible courses of action. We can say that the right of access is not important, that it is merely an unnecessary hindrance of the police. I reject that view. The Shilhan case, among others, shows the right to be an important one. But, even

if we were to take that view, surely it would be much more honest to abandon the pretence that the right exists and can be enforced.
The other course of action is to provide more statutory force to the Judges' Rules, and that is precisely what the Bill is designed to do. It provides a statutory right of access to solicitors, subject, of course, to the proviso in those rules, a proviso which I reluctantly accept is necessary. The Bill places on the police the onus of showing when a particular case falls within the proviso. The right of access given by the Bill would be enforced by making inadmissible any evidence obtained in breach of that rule. The confession in the Shilhan case, for example, which in that case was the only evidence on which a conviction could have been obtained, would, by this provision, be excluded.
There might be other cases where a conviction could still be obtained on other evidence even though the evidence in question was held to be inadmissible; that is, evidence obtained in breach of the rules. In order to take account of that situation, the Bill would provide that a person held in custody and denied access to a solicitor in circumstances to which the proviso could not be shown to apply would be deemed to be held unlawfully, and he would, therefore, have a civil remedy in damages against the police for false imprisonment.
The whole question of access to solicitors for people charged with criminal offences has been much helped and advanced by the practice of solicitors in some cities, including my own in Southampton, of providing a duty roster. I believe that the legal profession is to be congratulated on that initiative at any rate.
If it is thought that this modest measure goes too far—and I can see no objection to making illusion into reality as the Bill seeks to do—I believe that there is considerable support for its proposals in the European Court of Human Rights. That court recently decided in a case involving a British prisoner named Golder that the denial of access to a solicitor in the case of a prisoner was the denial of an essential element in a fair trial. The Home Secretary recently undertook to consider revision of the rules in the light of that


decision. The reasoning applied by that court in that case involving a prisoner applies equally, perhaps a fortiori, to the arrested person. Just as the present rules may have to be revised in the light of that decision, so the Judges' Rules must be given substance by a measure such as as my Bill.
In other words, the Bill provides for the citizens of this country what the European Convention on Human Rights establishes as the entitlement of the citizens of all civilised societies, and on that basis I seek the support of the House.

Question put and agreed to.

Bill ordered to be brought in by Mr. Bryan Gould, Mr. Ivor Clemitson, Mr. Robin Corbett, Mr. George Cunningham, Mr. Bruce Grocott, Mr. R. C. Mitchell and Mr. John Watkinson.

ACCESS TO SOLICITORS (ARRESTED PERSONS)

Mr. Gould accordingly presented a Bill to provide for arrested persons to have the right of access to a solicitor, subject to certain conditions; and to provide for the enforcement of such a right: and the same was read the First time; and ordered to be read a Second time upon Friday 11th July and to be printed. [Bill 165.]

Orders of the Day — FINANCE (No. 2) BILL (Clauses 5, 17, 23, 25, 28, 49 and 60)

Again considered in Committee [Progress, 15th May].

[Mr. GEORGE THOMAS in the Chair]

Clause 23

CHARGE OF INCOME TAX FOR 1975–76

3.48 p.m.

Mr. Nigel Lawson: I beg to move Amendment No. 30 in page 17, line 26, leave out £4,500' and insert £5,400'.

The Chairman: With it we may also discuss the following Amendments:
No. 35, in page 18, line 2, leave out £4,500' and insert £5,400'.
No. 36 in line 3, leave out '£500' and insert £600'.
No. 37 in line 4, leave out £1,000' and insert £1,200'.
No. 38 in line 5, leave out £1,000' and insert £1,200'.
No. 39 in line 6, leave out '£1,000' and insert £1,200'.
No. 40 in line 7, leave out £2,000 and insert £2,400'.
No. 41 in line 8, leave out £2,000' and insert £2,400'.
No. 42 in line 9, leave out £3,000' and insert £3,600'.
No. 43 in line 10, leave out '£5,000' and insert '£6,000'.

Mr. Lawson: The amendment is also tied to a further group of amendments which were not selected and which relate to Clause 28. The amendments seek to increase all the figures in the personal income tax structure by 20 per cent.—that is to say, the personal and married allowances are raised by 20 per cent. and all the figures to do with the investment income surcharge, the figures concerned with the rate at which a taxpayer begins to pay the higher rates and so on will go up by 20 per cent.
I do not intend to force this amendment to a vote. The purpose of proposing to increase all these figures is to have


a worthwhile debate on the vital question of indexation of the personal tax system and indexation in its widest sense. We have to keep in order, but some will say that it is improper to index the personal tax system without making other indexations as well.
Give or take a little, 20 per cent. is the amount by which prices have risen since a year ago. Figures which were right, which represented a particular level of earnings and income in real terms, a year ago would have to be increased by 20 per cent. to achieve the equivalent level of income today. Not to do this is to change the burden of taxation without any discussion by Parliament.
This point about indexation has been made several times in our debates. A year ago, in the small hours of the morning of 17th May, my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) and I first debated an indexation amendment to the Finance Bill. Since then there has been increasing talk of indexation, and with good reason. It has almost become fashionable. That is the only thing which gives me pause, because I become very suspicious when any idea starts to be fashionable. But one cannot rule out a step forward simply because it is attracting some fashionable attention.
The attention is not all fashionable. I am glad to be able to report that it had the substantial and weighty support of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) in a speech he made earlier this year at Ainley Top, a place of which I had not previously heard, in which he said
Is there nothing which can be done in the meantime to ameliorate the effects of inflation and to remove some of its most glaring injustices? It is my personal belief that there is another policy which now deserves consideration. I have in mind the policy which is variously described as indexating or monetary correction.
He went on:
Take, for example, the basic income tax. Because the tax is progressive, individuals are moved to a higher and higher tax bracket as a result of inflation even though their real income may remain unchanged. Why should not all basic tax allowances plus the tax brackets of PAYE now be revalued annually to take account of inflation?
He concluded:
This would ensure greater equity. And it would remove an incentive to allow inflation to carry on at current rates.

That is the burden of my argument on these amendments.
But there are other aspects, too, which need to be stressed. First, the present system detracts from honesty in politics. It leads to dishonest statements being made which no one can wish to have made. I will quote just one such. In his Budget night broadcast to the nation on television, the Chancellor said:
I have taken 400,000 people out of tax altogether and over 9 million people will be paying less income tax now than they were before.
That is a lie. There is no other word for it. There are not 9 million people who will be paying less income tax this year than they were last year.
Indeed, the increase in the yield of income tax, a yield which is scheduled to rise dramatically this year, works out at about £4,000 million, give or take a little, so it is impossible that 9 million people will be paying less income tax. Pretty well everyone will be paying more.
What the Chancellor meant, of course, was that someone on the equivalent monetary salary may well be paying less tax, but if his monetary salary is equivalent to what it was a year ago, his real standard of living has probably declined by at least 15 per cent. There are not 9 million people in the situation which the Chancellor described. If there were, the Chancellor's concern at the breaking of the social contract would not be as acute and as shrill as it has been.
I hope that we shall learn tonight—the Government will not doubt be keen to tell us—the cost of this amendment if it were to be pressed to a vote and carried. As I have made clear, I shall not be pressing it to a vote. A whole series of amendments, raising every allowance by 20 per cent., would have cost about £1,200 million, according to the Chief Secretary in an earlier debate. This batch of amendments will probably cost about £500 million, but no doubt we shall hear.
The figure of £1,200 million means that the public has had to bear, through inflation, that amount in additional taxation. There are no two ways about that. The question is not whether taxation of £1,200 million extra needs to be raised this year—although that is an important question—but whether it should be raised


entirely through the income tax and with no proper parliamentary scrutiny.
Both the Chief Secretary and the Chancellor addressed themselves to this point on Second Reading. The Chief Secretary said that raising that £1,200 million would mean an extra 3½p on the basic rate. But that of course is not necessarily true. There are all sorts of other ways of raising the money. It could be done by the Chancellor of the day explicitly saying, "We will change the tax allowances and the tax bands and not let inflation do our dirty work for us." Or it could be done by other means of taxation. Of, if it is the borrowing requirement about which he is concerned—that is what Ministers are rightly concerned about—it could be done by cutting public expenditure by an equivalent amount.
I and many of my hon. Friends think that it is wholly wrong for income tax to be used, through the mechanism of inflation, automatically to recoup this vast sum, when what should happen is that the Chancellor should decide the maximum level of borrowing requirement that he feels the country can afford—what it is right to carry, how much borrowing he can count on being able to do—and then decide how he will finance it, and, if it is to be reduced, whether that should be done by cuts in public expenditure or increases in taxation—and, if the latter, by what sort of increases and in what taxation. Then the House and the nation should be told explicitly what is being proposed and the House should have the opportunity to vote on the proposals.
At present, there is an inexorable slide in which the burden goes more and more heavily on the personal income tax. Although, of the £1,200 million of increased taxation that the Chancellor announced in his Budget, only £200 million was ostensibly on the income tax and the other £1,000 million was on indirect taxation, the Budget Red Book shows that the proportion of total tax revenue accounted for by personal income tax, which last year was 47 per cent., this year is to be 52½ per cent. That is the first time that it has ever been over 50 per cent. of total tax revenue.
Inexorably, on an unindexed system, in which no adjustment is made for inflation, the burden is being shifted on to income tax and away from the indirect

taxes, some of which, of course, are expressed in specific terms—the Excise duties, in particular—and have no buoyancy at all.
4.0 p.m.
Many people considered this to be undesirable. I consider it undesirable. It has been pointed out by Mr. Samuel Brittan in a recent article that, as a result of the lack of indexation, the marginal rate of tax, which is crucial where incentives are concerned, has moved dramatically. In 1972, when the unified tax scale was introduced by the then Conservative Chancellor of the Exchequer the marginal rate reached the 50 per cent. level at £8,000 on earned income. It is now reached at £7,000, which is the equivalent of only £4,600 at 1972 prices. So marginal tax rates, as a result of the non-indexation of the system, have become higher and higher at a given level, or, alternatively, the really disincentive rates start coming into operation lower and lower down the income tax scale.
Some may think this is a good thing, and that a redistribution of income of this kind is highly desirable. They are entitled to advocate and argue this, but it should be proposed to this House explicitly and carried through this House explicitly, and not presented, as it is to this Committee now, as somehow an inevitable effect of inflation.
The people who want to have a redistribution of incomes in this country should not rely on the combination of rapid inflation and a progressive income tax system to do their work for them. They should have the courage to make the proposals explicitly and openly to this House.
There has been much talk about what effect there would be on inflation as a result of the lack of indexation. The Chancellor of the Exchequer suggested in the House that inflation might be worse as a result of indexation, because more revenue would have to be raised through indirect taxes, and this in turn would raise the retail price index, which would have an inflationary impact. That is not a very sustainable argument when there is available the alternative of public expenditure tax; and in any case raising indirect taxes is something that the Chancellor of the Exchequer has himself rightly undertaken in this Budget.


What he was wrong in doing was to pretend last July that he was curing inflation by cutting rates of indirect taxation, by cutting VAT from 10 to 8 per cent.
More serious objections to indexation have been put by the Chief Secretary to the Treasury. On Second Reading he pointed out that the money would have to be found in some other way, as indeed it would. There is no dispute over that. His complaint was that:
Indexation of tax rates, tax allowances and tax thresholds would create enormous rigidity in the tax system. It would tie the hands of any Chancellor."—[Official Report, 8th May, 1975: Vol. 891, c. 1746.]
With great respect, that is absolute nonsense. I believe that there should be an automatic system of indexation like the one working very successfuly in Canada since 1st January 1974. In Canada there is an indexation of taxation by an automatic formula which adjusts to the rate of inflation and the rise in the cost of living. But the yield can always be changed by the Chancellor of the Exchequer coming to the House of Commons and saying that he will increase the rates from 30 per cent. to 35 per cent., 38 per cent. or 40 per cent., and change various bands of taxation. There is no problem for the Chancellor of the Exchequer of the day in carrying out whatever fiscal policy he considers to be appropriate. The difference is that under an indexation system such as the Canadians now have it is done honestly and openly, whereas under a dishonest system, which is what we have, it is done surreptitiously. But the Chancellor of the Exchequer, with an indexed system, has complete freedom. During the year the indexation will not change things, because the proposed indexation will only operate at annual intervals, but when the time comes the Chancellor of the Exchequer will take this into account and if necessary alter the tax rates accordingly. There is no rigidity and no hampering of the system. The Canadian Government have found no difficulty in carrying it out.
Although it is the civil servants of the Treasury who have great qualms, apparently, about indexation, when it comes to something close to their hearts, such as public service pensions, they make quite sure that these are fully

indexed and fully inflation-proofed, which no private scheme could possibly afford to do.
Other objections to the indexation of taxation, and to indexation generally, were voiced in the Second Reading debate by my hon. Friend the Member for St. Ives (Mr. Nott). They were not so much objections but perhaps comments on the problems involved. We should examine the objections seriously, and in a nonpartisan fashion. My hon. Friend pointed out that there are certain technical difficulties. That is true to a certain extent. I think the Chief Secretary to the Treasury also said that a base date has to be chosen. That is true, but although to a certain extent the date if arbitrary, it does not in the long run make much difference what base date is chosen. Whatever date so chosen, it would be an infinite improvement upon and provide greater justice than the present system.
The question of what index is used again makes very little difference. The RPI between 1971 and 1974 went up by 35·7 per cent. The GDP deflator over the comparable period shows a rise of 34 per cent. So long as one index is taken for everything it makes very little difference.
My hon. Friend mentioned some other points. He asked whether it is just to index partially and not wholly. On the question of taxation, what is being suggested is that indexation should apply right across the board for all taxpayers in relation to tax allowances, tax bands and tax thresholds, the rate at which investment income surcharge comes in, and everything else. It is true that it will make no difference to the inequalities that occur as a result, in the Chancellor of the Exchequer's own words of some people getting the plums and leaving others with the crumbs. This is not going to be cured by indexation, but indexation will not make anything worse. It will reduce a whole range of inequities which occur as a result of the tax system being unindexed.

Sir John Hall: Would my hon. Friend not agree that it would help to spread the burden more evenly over those who at the moment cannot protect themselves?

Mr. Lawson: I think my hon. Friend is quite right. It will ensure that, whatever burden there is, it is spread in the


way that Parliament intended, and that the spread is not an unintended consequence of inflation. Some part of the capricious redistribution of income which is the result of inflation will have been removed. I do not maintain for an instant that the total capriciousness of inflation will have been eliminated. Clearly, that will not be so.
My hon. Friend raised the question of the indexation being inclined to spread. I think what he and many hon. Members had in mind was that it might spread to the indexation of savings, Government bonds, national savings, and also wages. There is no logical reason why indexation should not be confined, as it is in Canada, to the tax system itself. That would be a great step forward. The indexation of wages only makes sense in terms of a statutory incomes policy, and I am not in favour of a statutory incomes policy, so, as I see it, this problem would not arise. But if one were to have a statutory incomes policy it would seem to me to make slightly less nonsense to have an indexed policy, so that prices were automatically taken care of in the wage rules, than to try to have a prices policy as well as a wages policy, with all the economic distortions and further non-senses that that would introduce. If private employers and unions privately wish to negotiate an indexed agreement, there is nothing to stop them. There is no reason why they should not do so. It is up to them, in a free society and with free collective bargaining.
On savings, my hon. Friend the Member for St. Ives was worried about two matters. It may be that the Government are less worried. In the last Finance Act they introduced two savings bonds, both of which were index-linked, including what the hon. Member for Durham (Mr. Hughes) aptly christened the "geriatric bond." The fear in the mind of my hon. Friend the Member for St. Ives about savings was:
… if one indexes a bond, either the bond is attractive, in which case everybody wants to buy it, or it is not attractive and nobody wants to purchase it.—[Official Report, 8th May 1975; Vol. 891, c. 1738.]
If that were to happen, it would be gross mismanagement by those whose responsibility it is to float new bonds.

Mr. John Nott: Following the passage from my speech which my hon. Friend has just quoted, I said that if it were attractive everyone would want to buy that bond and the result would be a repercussion on the existing fixed-interest bond market. That was my point.

Mr. Lawson: My hon. Friend is quite right. I did not intend to misquote him. But I have in mind the depreciation that occurred in the past. Those who bought War Loan at 100 and now see, as the result of inflation, that it stands at 231, and appreciate that the decline in real terms is infinitely more, have not been helped by the absence of an index-linked bond.
Let us suppose that an indexed bond were introduced to retain its purchasing power whatever the rate of inflation. Let us suppose, further, that it had a nil yield and that existing long-term Government securities, not indexed, have a 15 per cent. yield. The purchaser would have to make up his mind. If he thought that the rate of inflation was likely to be 20 per cent., obviously he would prefer the nil yielding indexed bond to what, in real terms, would be the minus 5 per cent. unindexed bond. If he were of the opinion, like the Chancellor of the Exchequer, that the rate of inflation would be closer to 10 per cent., he would prefer the unindexed bond which was yielding, in real terms, 5 per cent. to the indexed bond yielding zero. Therefore, there is no reason why there should be a rush to one or other type of bond. Some people will make one assumption about the rate of inflation and decide to buy the unindexed bond. Others will take a more pessimistic view of the rate of inflation and buy the indexed bond.
It is the job of those who manage the National Debt to decide when floating an indexed bond where to pitch it so that it will attract custom but not cause a rush to switch out of the old bonds. It may be necessary for the bond to have a small negative yield. But, with the unindexed bonds which we have at present, the Government have every incentive for inflation to romp ahead. The faster inflation goes, the smaller the real burden on the National Debt. It is a way of defrauding the saver, as he has been defrauded hitherto.
If there is an indexed bond with a zero yield, it is a very strong incentive for the Government to prevent any inflation. If there is no inflation, they are borrowing money at nought per cent. That is very cheap and very good for the Government. But if there is rapid inflation, the Government will have to pay the price at the end of the day in redeeming the bond at a value which has increased by the amount of inflation.
This and other arguments were looked at by the Page Committee. The Page Report came down heavily in favour of at least an experiment with an index-linked bond for the reasons that I have suggested. It also suggested that, if there is any connection between inflation and indexation, indexation provides an incentive for Governments not to inflate. This is true of bonds. It is equally true of taxation, because there is no great uncovenanted additional revenue—£1,200 million—to be got from the effect of inflation on an unindexed taxation system.
I echo the remarks of my right hon. and learned Friend the Member for East Surrey, who put forward succinctly all the arguments for indexation of our tax system. This is no panacea. It is no cure for inflation. But we have to remember that, although we have to bend all our efforts to getting the rate of inflation down now that it is running at an annual rate of about 25 per cent., it will not be got down overnight. There will be a considerable period while it is coming down. In that period we must protect the taxpayer and the saver and treat them honestly and equitably.

Mr. Nicholas Ridley: But if the Government try to increase inflation, which appears to be their policy at present, does my hon. Friend think that we should seek to bring in indexation against the background of that policy?

4.15 p.m.

Mr. Lawson: I trust that no Government will have a deliberate policy of increasing inflation. Half of this Government have that policy, I agree, but the other half are trying to reduce the level of inflation. This presents certain problems. If the Government are to pursue a policy deliberately to inflate, it is even

more necessary to have some protection of this form for the citizen from the capricious and harmful effects of inflation. I do not see why the Government should benefit from it, as they do at present.
Public expenditure will always increase to meet the tax revenues available. If anyone doubts that, he has only to look at what is happening in our town halls. The rates are not a buoyant tax. There is a huge rate protest. There is tremendous resistance to rates increasing. In the future, this will have some moderating effect and give councillors pause about whether to increase expenditure.
Does any hon. Member imagine that, if rates went up faster than the rate of inflation, which is what is happening under our present system of taxation without indexation—roughly speaking, for every 1 per cent. of inflation, tax revenue goes up nearly 2 per cent.—this hugely buoyant source of revenue would act as a greater curb on the spending of local authorities? Of course, it would not. They would spend even more. Public expenditure increases to meet the revenue available and often exceeds that revenue. The difficulty of raising revenue is one of the most important constraints on the level of public expenditure, which is a further reason why we need indexing.
Inflation cannot be cured overnight. We have to live with it for a period. Therefore, the Government should not impose unnecessary hardships on people. The cure for inflation is extremely difficult. There are industrial difficulties, political difficulties and economic difficulties. If something simple and straightforward can be done, like indexation as it was done in Canada, it should be done. It is no good the Government dismissing it by saying that it is not the whole answer. Obviously it is not. But it would be a great amelioration of the present situation. It is something that the Government can do and should do. I hope that it is something which both the great parties in this House will move increasingly towards accepting before it is too late.

The Chairman: At the beginning of his speech the hon. Gentleman used an expression which is outside our parliamentary rules. He knows that I am quite


unable to allow the charge of an hon. Gentleman or right hon. Gentleman having told a lie, and I should be very grateful if the hon. Member, before he sits down, would withdraw that expression even if he has to find another within the parliamentary rules.

Mr. Lawson: First of all, I am sorry. I was talking about a statement made by the right hon. Gentleman the Chancellor of the Exchequer outside this House in a television broadcast. I will willingly withdraw that, if that is required of me, and will say it is wholly devoid of correspondence to the facts.

The Chairman: That makes everyone happier.

The Minister of State, Treasury (Mr. Robert Sheldon): The hon. Member for Blaby (Mr. Lawson) has long had an interest in indexation, but the amendments to which we are directed, of course, are towards revalorisation of these higher rates. He used very extreme language, of which I note your correction, Mr. Thomas, but it is not for me to comment on that, except to say that, for my own part, I feel very saddened when hon. Members outside this House—inside this House is no particular concern of mine; it is your concern—use such words. The word "lie" is becoming a common word in our political life, and that is something about which I feel sad.
I will deal first with the figures quoted by the hon. Gentleman from those given by my right hon. Friend the Chancellor of the Exchequer. I find no fault in what he said. He said that these 9 million people represent the number of people who will pay less tax. That is perfectly true. I know his reservations and I understand them. Indeed, I think most people in the country understand those reservations. He was not making a great claim, just pointing out a simple change which resulted in this situation.

Mr. Lawson: Had the Chancellor of the Exchequer said that 9 million people would be paying less income tax than they would have paid this coming year had he not made these changes, that would have been correct. However, that was not what he said. What he said was:
Over 9 million people will be paying less income tax now than they were before
—and that is not correct.

Mr. Sheldon: I noted the change in the quotation while the hon. Gentleman was reading it. He was presumably reading from the same document as I, that is the Treasury Press release, which says:
Over 9 million people will be paying less income tax now than they were before.
That is obviously so. Once he had announced that, that would be so for the whole of the year. He said that this was the position before the announcement, and the other was the position afterwards.
For the hon. Gentleman to use such extreme words on the basis of that was not only unparliamentary, which is no concern of mine, but also rather sad. It is sad to see wider currency given to the use of such extreme language.
To deal with the serious points made by the hon. Gentleman, he pointed out that it was wrong for income tax to be used to recoup large sums surreptitiously without adjustments being made for inflation. That is where I take issue with him. It is undeniably true that keeping the same higher rate threshold and the same higher rate bands will obviously result in an increase in the tax paid, and where the income is not increased there is obviously a net reduction in the income of the individual. That is obviously true. But the hon. Gentleman must not assume that this was an unforeseen consequence. This was understood, known and discussed, as indeed were revalorisation of allowances, rates and bands.
All these matters come up each year for consideration and when changes are not made it is not because they have not been considered or were thought not to be necessary. It was a conscious decision, and the Chancellor made this quite explicit when he said in his Budget statement:
I recognise that the result for most people will be, in spite of the increases in allowances I have just proposed, that the burden of income tax in the coming year will be significantly increased, because I am not adjusting the various tax levels in step with money values.
That is a clear statement, and he went on:
But I am afraid that my need for revenue is paramount, and I cannot offer any general relief beyond the increase in allowances pro-posed."—[Official Report, 15th April 1975; Vol. 890, c. 316.]


So there was nothing surreptitious about that. This was a conscious decision, stated precisely.

Sir John Hall: Although I recollect the remark by the Chancellor of the Exchequer to which the Minister has drawn attention, would he not agree that by most taxpayers that statement was either not read or, if read, was forgotten or not fully understood? They do understand, however, an increase in their rate and the effect of leaving the bands unchanged. The effect of inflation is in reality to increase the rate in the pound in real terms. It would be much more understood if inflation were taken into account in moving the tax bands and increasing the rates. People would then know precisely what was being taken from them in tax.

Mr. Sheldon: The argument for indexation is that it will become clear to the individual what is being done, and I accept that that would be an obvious consequence. It has some disadvantages to which I will come later.
There was nothing in the way of a subterfuge here. It was quite clear. This was the principle involved and this was the consequence of the need to obtain revenue. But, of course, in seeking to obtain more revenue income by this means, by the failure to revalorise these bands, the Chancellor had to take into account how he was going to get the taxation he required, how he was going to cope with the borrowing requirement, large as it appeared.

Mr. Lawson: The right hon. Gentleman says it is not indexation to revalorise and refers repeatedly to revalorisation. I am sure he is aware that in this clause we are dealing with income tax for the year 1975–76, and a revalorisation amendment is the only one which would be in order on this clause. I hope he will take it from me that what I and many of my right hon. Friends seek is an automatic indexation formula of the type in use in Canada.

Mr. Sheldon: I understand that and the difficulties of putting amendments, although there is of course an amendment in the name of the right hon. Member for Devon, North (Mr. Thorpe) and his hon. Friends, and we shall be coming to that. I do not think we need to be too precise

about this. Many of the arguments for the one will be arguments for the other. The main difference, where a difference exists, is that it should be automatic rather than conscious. I prefer to leave that to be dealt with when the amendment proposed by the hon. Member for Devon, North and his hon. Friends is before us.
I should say that this decision not to revalorise the higher rates of income tax was concious because the burden which needed to be shared had increased very substantially on those with lower incomes over the years.
4.30 p.m.
One thing that is not quite as generally understood as it ought to be is that those with average incomes have been paying a higher proportion of their earnings in income tax over the years. This has gone on steadily. Before the war a person with average earnings paid no tax. For a manual worker in a factory, income tax was something outside his experience. This has changed over the years. As recently as 1950–51 a married man with two children under the age of 11 who was earning the average manual wage paid half of 1 per cent. of his earnings in income tax. That has risen to 18·7 per cent. for the current year. There has been a continuous change irrespective of which party has been in power. The proportion of earnings going to income tax has risen throughout the period.

Mr. John Pardoe: The hon. Gentleman has set the cat among the pigeons. If he looks at the detail of those figures he will see that the largest single increase in any one year is between the figure of 14·9 per cent. for 1974–75 and 18·7 per cent.—the figure he has just quoted for this tax year. That makes a mockery and charade of the Chancellor's implication that he has reduced tax for 9 million people.

Mr. Sheldon: The only point I was trying to make was that income tax on average earnings has increased over the period. If the hon. Gentleman wants a big increase, I can tell him that in 1970–71 it was 14·7 per cent. Whereas in the past sums obtainable from average earnings were small, they are now considerable and form an important part of the revenue. When we call for sacrifices


of this kind we need to compare the contribution being made by such people—which the Chancellor quite clearly said had a great deal to do with the large increases in incomes that occurred during that period—with the sacrifices called for from those with the higher rates of incomes.

Mr. Douglas Crawford: Surely the hon. Gentleman is talking about revalorisation and not indexation. There is a need to be precise. I take it that we are talking about revalorisation. The arguments do not necessarily extend to indexation.

Mr. Sheldon: I am talking about re-valorisation and the need for compulsory indexation which, although not part of the amendment is the purpose behind what the hon. Member for Blaby (Mr. Lawson) is saying. We can deal with that now or in a more orderly manner on a later debate. Many of the arguments apply to both cases.

Mr. Crawford: If we are voting on this amendment we are voting on re-valorisation not indexation. That comes in Amendment No. 64.

Mr. Sheldon: In that case I will proceed in the way the Committee obviously wishes to proceed. I am talking about revalorisation and pointing out that when it came to the revalorisation of these higher rate bands this was a conscious decision, as these decisions always are, bearing in mind the burdens being imposed upon average industrial earners.
The hon. Member for Blaby asked me about the cost. He is a fairly expensive hon. Member. The total for the schemes he has put forward would amount to £850 million. The cost for that which we are talking about now is £194 million—that is raising the higher rate threshold and the rate bands in accordance with the amendment. The yields of income tax this year and last year are as follows: in 1974–75 income tax raised £10,237 million. I will give the increase—

Mr. Lawson: It is in the Red Book.

Mr. Sheldon: I will give some information which the hon. Member will not find in the Red Book and which may be of assistance. For 1975–76 the estimated yield is £14,008 million—

Mr. Lawson: It is in the Red Book.

Mr. Sheldon: I acknowledge that that is in the Red Book, but the figures that I am about to give are not and they are related to those I have given. The estimated yield in 1975–76 is £14,008 million which is an addition of £3,771 million. I would like to break the figure down so that the hon. Gentleman may be able to use it. If he uses it against me it is better that he is well informed rather than ill informed. Of this total, 46 per cent. is due to inflation, 19 per cent. is due to the increase of 2 per cent. in basic and higher rates while 35 per cent. is due to fiscal drag, that is to keeping tax allowances, thresholds and so on fixed in money terms or increasing them by less than the going rate of inflation.

Mr. Lawson: Will the hon. Gentleman explain the difference between fiscal drag due to inflation and the increase due to inflation but not fiscal drag?

Mr. Sheldon: One is due to people obtaining higher incomes. As they do so they have more money available upon which they are taxed. Following that, tax rates are raised to obtain greater yields. There are these elements in this breakdown. We need to consider the effects of inflation in raising incomes and the effects of inflation in raising tax rates. The position is basically simple. The greater the problem of inflation the greater the contribution that must be made by those who are better off. More will be required from those with the most means. No one assumes that this will continue indefinitely or that this is a path only half-trodden. There were particular problems this year. The Chancellor has dealt with them. It was not an omission or an oversight. It was a deliberate plan. This is the result.

Mr. J. Enoch Powell: As this is the principal amendment on the subject of income tax, it is, perhaps, the right moment, apart from the Question, "That the clause stand part of the Bill", on which debate may not arise, to enter a protest against something which the Chancellor of the Exchequer said in his speech on Second Reading of the Finance Bill, which ought not to pass without challenge, because it is typical of the whole operation of shifting the blame for inflation from the Government, where


it belongs, to the public, where it does not belong—an operation that is profoundly dangerous for the whole politics and system of this country.
In Hansard of 8th May, referring to income tax, the Chancellor of the Exchequer said:
So long as the warnings about excessive increases in incomes go unheeded, I shall be obliged to take such measures.
In case the avoidance of blame was not clear enough in those words, he went on:
The choice is not for me but for the British people as a whole. Either we moderate our demands for income we have not earned or moderation must be imposed through the tax system."—[Official Report, 8th May 1975; Vol. 891, c. 1634.]
Perhaps some twenty years ago, when we were on the foothills of inflation and when the nature, causation and consequences of inflation had not been so miserably explored as they have been during the last two decades, there might have been some excuse for ignorant language of that kind being used by a Chancellor of the Exchequer. There is no excuse for it in 1975. There is, particularly, no excuse for it from the lips of a Chancellor of the Exchequer who showed by other parts of his Budget speech, and by other parts of his Budget, that he knew perfectly well where the causation of inflation lay and that a Government which deliberately budgets for a huge uncovered excess of public expenditure over revenue courts inflation from which the British people have no means of defending themselves unless and until they can secure Ministers who will behave differently.
When the Chancellor of the Exchequer said:
The choice is not for me, but for the British people as a whole",
he was exactly wrong. The choice is for the Chancellor of the Exchequer—at any rate, as a member of the Cabinet—whether or not the Government will balance their budget or budget for huge borrowing requirements which are as pregnant with inflation as a storm cloud is with rain. When successive Governments—not only this one—do that, the consequence is that all prices, wages and incomes cannot help but increase. The increase in incomes is the inevitable

symptom of the monetary inflation which the Government have—we must fear nowadays—knowingly and deliberately caused. I repeat, that applies not only to this Government.
It is, therefore, a most blatant inversion of the truth for the Chancellor of the Exchequer to say:
The choice is not for me, but for the British people as a whole.
4.45 p.m.
There are many things wrong with our industrial relations today and with our system of collective bargaining, and many of the things which are wrong are themselves the delayed effects of a long regime of inflation. However, what is not wrong with our trade unions and with our system of collective bargaining is that through it the British people choose, as the Chancellor illiterately put it, to demand income we have not earned".
It is not within the power of any trade union system, however powerful, however greedy, however monopolistic, to ensure the continued availability of the supply of money which not merely makes it possible but makes it inevitable that what are mis-called "inflationary increases in wages" should occur.
It is intolerable for the Chancellor of the Exchequer, when he was only partially doing his duty in his Budget—on one side or the other of it—of eliminating the root cause of inflation, to come down to the House and blame the public for the increase in income tax, which was partly a real increase and partly, as appears from the speech of the hon. Member for Blaby (Mr. Lawson), an increase which represents a shift in the burden of income tax mechanically caused by inflation. It is intolerable for the Chancellor to say "It is no fault of mine that income tax is being raised in real terms. It is no fault of mine that increases in incomes, which merely represent a decline in the value of money, are taxed away by an increase in income tax. It is no fault of mine that, because I have budgeted for an exorbitant increase in total public expenditure, therefore I have to go some way towards meeting it by an increase in the income tax."

The Chairman: Order. I would remind the right hon. Gentleman that if the members of the Committee are to make


speeches now, of the kind they would make on the Question, "That the clause stand part of the Bill", they must not expect later to have a debate on that Question, because the right hon. Gentleman knows that he is making such a speech now.

Mr. Powell: I am sorry if the effect of my words should be to debar any hon. Member from taking part in a clause stand part debate. I was, however, fortified by the observation, which was not contested, that if the amendment which is before the Committee were carried, it would result in a very large diminution in the return from income tax which the Chancellor of the Exchequer was anticipating. I hope, therefore, that I was directing myself to the effect of the amendment, namely, greatly to reduce the anticipated yield of the proposals of the Chancellor of the Exchequer upon income tax. However, I was in any case drawing to a close and I hope that with a convenient lapse of memory, Mr. Thomas, you will not count any words of mine against any hon. Member who might wish to speak to the Question, "That the clause stand part of the Bill".

Mr. Sheldon: Because the right hon. Gentleman has criticised the Chancellor of the Exchequer, I should like to ask him a question. What would he say to the question put this way: if the British people were to moderate their demands and settle for less than they otherwise would—something which the right hon. Gentleman could well contest—what would happen to the public sector borrowing requirement?

Mr. Powell: I shall tell the Minister exactly what would happen if a particular trade union, all the trade unions together, or all the income earners together were to place that limitation upon themselves, if they possibly could. Of course, it would not be practical or possible, but I accept for the purposes of the argument the hypothesis posed to me. The only consequence would be that all prices other than the price of labour would have to rise in order to take up the consequences of the increased flood of money released by the Government's inflationary financing of its expenditure. It is literally not in the power—and I am obliged to the Minister, for he enables me, finally, to make my point once again and briefly

—of the British people either as individuals, or as members of trade unions, or in any other collectivity except that of political parties, to bring about a moderation or cessation of inflation as we now have it. They are only to blame in the sense that the public are always to blame for the kind of Government they get, and that if there is a series of profligate Governments who tax them through inflation instead of taxing them honestly through the Finance Bill, ultimately they are to blame. That, however, was not what the Chancellor of the Exchequer was saying.

Mr. A. P. Costain: I always feel wrong in intervening in such a highfalutin' debate. I have listened to the Minister's reply to the reasonable amendment of my hon. Friend the Member for Blaby (Mr. Lawson), an amendment which he honestly admitted was tabled to allow us to debate the whole question of taxation and its effect on inflation. The Minister was frank when he explained in detail how, in the time when productivity was good in this country and when there were not excessive wage demands, the average pay carried no income tax. That to me is the basis of all the trouble. Basically it is the chicken and the egg in relation to inflation. How often have we found in industry that productivity has ceased to increase when the ordinary working man began to have to pay income tax?
Has it never occurred to the Treasury that the Treasury itself is aiding and abetting the whole matter of inflation by taking a commission on the increase of wages? Is it not helping the Chancellor to balance his Budget when his fellow Ministers do not resist, as they should resist, demands for pay increases? The right hon. Member for Down, South (Mr. Powell) may say that the public are not responsible. The public are not responsible when inflation is aided and abetted like this. It would be a very simple matter if we had remembered what happened on the Continent. Does the Treasury remember that some 10 or 12 years ago the Germans were quickly reminded of what happened immediately after the First World War, and they realised very quickly how inflation could ruin an economy. I hope that the Minister is listening to me, because I am trying to educate him.

The Chairman: Order. I am listening, too, and I must remind the hon. Member for Folkestone and Hythe (Mr. Costain) that there can be little doubt that he is debating the Question, "That the clause stand part of the Bill," rather than the amendment to leave out £4,500 and insert £5,400.

Mr. Costain: Thank you, Mr. Thomas, for drawing that matter to my attention. I was clearly under the impression that the Opposition Front Bench had said that it did not want a debate on the clause as a whole.

The Chairman: That is joyful news, but I am the last person to hear it. However, I accept the offer with gratitude.

Mr. Costain: If you would prefer me, Mr. Thomas, to leave my words of wisdom to a more suitable occasion, I should readily agree. However, perhaps I may relate them more definitely to the amendment.
As I understand it, what we are asking in the amendment is to decrease the amount which is to be paid because of the inflationary factors in the pay packet. That is what the amendment is all about. That is the point to which I was trying to direct my remarks. I may have been persuaded to stray from my theme because the two Treasury Ministers present did not seem the least bit interested in what I was saying. That is basically because they are not interested in getting industry to control wages. That is what the problem is all about. When will they realise that the more they increase taxation, the more we shall get inflation. It is as simple as that. Once we get decreases in taxation we shall begin to reduce inflation.

Mr. Ian Lloyd: In making his defence against the case put for the amendment by my hon. Friend the Member for Blaby (Mr. Lawson), the Minister of State made what I thought was a most interesting point and he produced a most fundamental argument. He said that he could not accept the amendment because basically it would involve something contrary to the Government's philosophy, which was that the main burden of the readjustment necessary if we are to beat inflation should be borne—as the Government so often say—by those with the broadest backs. I accept

at once that this is a natural and inevitable argument for anyone sitting on the Treasury Bench who professes a Socialist philosophy. However, it is a most dangerous argument. Without straying too far from the rules of order, I hope to demonstrate—because it is central to the amendment—why that is so.
I have produced some figures which are highly relevant to this situation and the proposal that one can correct the situation, to which the amendment refers, by what one might call redistributive economics. I should like to refer particularly to the position of those whom one might describe as the less than £2,000-a-year income group in this situation.
One can ask straight away, what is the percentage of this massive overspend which our society is facing which is directly attributable to the net expenditure within what one might call the PAYE sector—those earning less than £2,000 a year? I will give the most recent comprehensive figures which are available to me. Total final expenditure in the United Kingdom was £89 billion. This is the era of the billion. Total consumers' expenditure was £45 billion. Consumers' expenditure in the less than £2,000-a-year group was, say, about £40 billion per annum. Public authorities' expenditure on current goods and services, plus fixed investment, was £17 billion. On a generous basis, 80 per cent. of that expenditure—this is going well in the direction that Government Members will accept—is attributable to those with incomes of less than £2,000 a year. That means that 95 per cent. of the population is benefiting from only 80 per cent. of public expenditure. One thus adds a figure of £13·6 billion to the total. We must not forget that of private sector investment a considerable proportion is attributable to those with incomes of less than £2,000 a year. To be generous, one takes one-sixth of the figure of £8·3 billion and adds another £1·4 billion to this total.
This makes a total of £55 billion of national resources which are directly in some way or other consumed by the PAYE sector of society. That gives me a figure of 62 per cent. I suspect that the figure is nearer 70 per cent. However, even on this basis, 62 per cent. of the economic deficits, 62 per cent. of the borrowing requirements and 62 per cent.


of the balance of payments deficits—62 per cent. of the national economic problem—is directly attributable to, affected by and cannot be influenced without actions which impinge on the mass aggregate of income and wealth in the less than £2,000-per-annum group of society.
I should be glad if the Minister or anyone else would dispute my figures, suggesting that they are wrong, and therefore, suggesting that the whole burden of readjustment and inflation can be borne by those with the broadest backs.
I have argued previously, as I argue now, that this is an obsolete philosophy. It may be Socialism but it has no relevance either to the amendment or to the present economic situation. There is no redistribution of wealth, no alteration of taxation or change in the distribution of incomes between persons which can possibly achieve a national economic adjustment of the magnitude which is now required. That was one of the points my hon. Friend the Member for Blaby was making in moving the amendment.

[Mr. OSCAR MURTON in the Chair]

5.0 p.m.

Mr. Crawford: The right hon. Member for Down, South (Mr. Powell) related the raising or reduction of the tax threshold to the inability of trade unionists to affect the rate of inflation in this country, and other hon. Members have, once again, referred to "this country". I remind the Committee that there is more than one country in this United Kingdom, and more than one economy.
The trouble with the United Kingdom as a whole is that trade unionists are striving for an ever larger share of a decreasing cake. However, when Scotland gets self-government again, trade unionists and others will be seeking a larger share of an increasing cake. Briefly, this will lead to less industrial strife, and arguably--I realise that it is arguable—to less inflation. The Committee should be aware of the differences of the Scottish economic situation.

Mr. Nott: I was conscious at one point that I was required to rise to my feet and suggest that the official Opposition did not want a debate on the Question "That the Clause stand part of the Bill," but I have learned over the

years that such an incautious statement would have been rash, to say the least, because my hon. Friends might well wish otherwise.
This has been a very worthwhile debate. The whole Committee owes a debt of gratitude to my hon. Friend the Member for Blaby (Mr. Lawson) for raising the important issue of indexation. The right hon. Member for Down, South (Mr. Powell) took the debate rather wider and so did my hon. Friend the Member for Havant and Waterloo (Mr. Lloyd) but perhaps I can fit in a few comments on what they said within a general answer to my hon. Friend the Member for Blaby.
To the extent that my answer may involve something of a discussion among the Conservative Opposition it certainly would not be anything new to the Chief Secretary and the Minister of State who normally, while they were in Opposition, indulged in almost a perpetual dialogue with their own backbenchers to the total exclusion of the Government.
We do not want a long debate on this issue and I shall, therefore, resist the temptation to go into the wider issues of indexation, except to repeat what I said in Second Reading of the Finance Bill. I believe that to be wholly fair indexation should cover all forms of earned income, investment income, capital taxation, contractual debts and tax scales. In other words, indexation would have to be right across the board.
I certainly accept—as I am sure the Committee does—that although indexation is not at present right across the board it has gone a very long way within our system. It protects public service pensioners, but not generally those in private pension schemes. It protects most social service beneficiaries, but not those who are thrifty and who have saved for their own protection and security. It apparently provides—and I am still referring to indexation generally—a very high degree of security of employment to those within the public sector, where spending is designated in constant prices, while employees in the private sector are subject not to the protection of this so-called funny money, but to the availability of actual cash. In the private sector no cash means no job, even though we have a strange phenomenon in the form of the Secretary of State for


Industry. However, not even he, in the medium term, will be able to avoid the very real fact that no cash in the private sector in the end means no job.
The indexation of stocks is a new invention of the Chancellor. In spite of the 10 per cent. element which is related to trading income, in the end it is likely to benefit more the inefficient company, which turns over its stocks rather slowly, than the efficient company which keeps its stocks low and tends not to turn them over so fast, although I appreciate that the Government have tried to avoid this in their measures. I am looking upon the stock value provisions as an alternative to lower corporation tax which would clearly benefit profits generally.
In all those areas we have indexation and it has gone far within our system. However, I believe that these examples merely illustrate the point I made the other day that indexation does not remove the pain of inflation. I am sure my hon. Friend the Member for Blaby would agree with me about that. Indexation redistributes the pain.

Mr. Lawson: It is fairer.

Mr. Nott: It may be fairer, but that is something I shall deal with later.

Sir John Hall: It does something else as well. It takes some of the fear of inflation away and therefore tends to moderate wage demands.

Mr. Nott: As my hon. Friend has raised the question of wages I shall deal with that matter now. I should like to put forward my personal view. I cannot speak for my hon. Friends and I do not want to be charged with making an official statement, because that would be a very boring way of conducting our debate. I must be allowed occasionally to have a view of my own.
I believe that the indexation of wages probably means that all that will happen is that the trade unions will start their bargaining in real terms. We have had that experience with Stage 3. I suppose that I take responsibility for Stage 3 although my influence in those days was not particularly great, to say the least. The effect of indexing wages at that time, with the thresholds within Stage 3, could be said to have been a device which led

to trade union bargaining in real terms as opposed to money terms. The trade unions are in existence and they will resent and resist the Government coming along to remove their very purpose. Certainly when considering wages we must be very cautious about the advantages of thresholds related to the cost of living.

Mr. Lawson: Will my hon. Friend not agree that what he is now putting forward is an argument against a statutory incomes policy of any kind—an argument with which I am wholly in agreement—and that the indexation of wages is something that neither he nor I are putting forward?

Mr. Nott: I realise that. My hon. Friend the Member for Wycombe (Sir J. Hall) raised a point about wages and I felt that I should deal with it. I agree with my hon. Friend the Member for Blaby that what I have said is a strong argument against statutory policies. I could not be more aware of that.

The Chief Secretary to the Treasury (Mr. Joel Barnett): Which view has the hon. Gentleman just given—was it an Opposition view or his own?

Mr. Nott: Perhaps the Chief Secretary will be patient and wait until the economic debate on Thursday for his answer. I am prepared to admit that such a reply to the Chief Secretary might be defined as a ministerial reply, but if the Chief Secretary will wait he will no doubt hear a great deal more on this subject during Thursday's economic debate.
I turn more specifically to my hon. Friend's amendment and to the indexation of tax revenue. Whether one calls it fiscal drag or tax buoyancy, one is referring to the indexation of tax revenue. What my hon. Friend is saying—and I wholly agree with him—is that what this effectively tends to do is to provide to a largely non-productive public sector, namely to the social services and so on, a supply of additional resources at the expense of individual taxpayers upon whose productive efforts the future of the nation largely depends. I wholly agree with the points that my hon. Friend was making in this respect.
The argument can be narrowed down to one principal proposition. It raises the question of whether all future tax


increases should be explicit or whether they should continue to be in part concealed, which is the case at present. All that my hon. Friend the Member for Blaby is saying, and all that advocates of indexation are saying, is that the Chancellor should come clean in his Budget statement. Let him come out straight away and tell the country exactly what he is doing. If he needs more revenue, let him raise the taxation rates rather than reduce by stealth the tax allowances in real terms.
I go a long way with my hon. Friend the Member for Blaby, but in a way—and I am now looking at the other side of the argument, because I hope that my hon. Friend will let me debate this—it presumes a certain naivety on the part of taxpayers which does not wholly exist. These taxpayers may breath an initial sigh of relief when they first hear the Chancellor's Budget statement and are told that tax rates and tax allowances will remain constant, but their behaviour does not support the suggestion that the Chancellor's stealth is normally successful. When they compare their take-home pay with what it purchases, they become well aware of what is happening to their real spending power. They then put in extra wage demands.
The natural buoyancy of the revenue may encourage a degree of pretence—call it deceit if one likes—on the part of Chancellors but the pretence is discovered fairly quickly, and the consumers—I am talking of consumers in the aggregate—do their best to put it right by seeking higher money incomes through wage demands.
Where I agree with my hon. Friend is that I think tax buoyancy deceives Chancellors when they plan their Budgets. The Chancellor frequently believes that he has more money at his disposal, more real revenue than proves to be the case. The planners say to him, "The future year's revenue, Chancellor, will be EX, and the availability of real resources for the public sector is likely to be EY." On that basis, the Chancellor may well plan his public expenditure on wholly false assumptions, because before long additional wage demands are generated in the public sector, leading to higher public spending overall.
The right hon. Member for Down, South pinned the responsibility for inflation on Governments. I think that I am saying something very much along those lines, because Governments have assumed a buoyancy of the tax revenue and therefore indulged in expenditure beyond the resources available. [Interruption.] I shall be happy if the Minister of State intervenes to say that he disagrees.
What has apparently happened since the war is that, in spite of all attempts by Chancellors, the proportion of the gross national product taken by private consumption has remained fairly constant. The proportion taken by public consumption—investment and expenditure on current goods and services--has been on a rising scale. The residual has been private investment. That is what has taken the real beating. Therefore, I think that it is true to say, as my hon. Friend the Member for Blaby did, that the availability of concealed tax increases to the Chancellor has tended to mean that Chancellors have spent more in the public sector than they might otherwise have done.

Mr. Sheldon: I am surprised that the hon. Gentleman is saying this. I assume that things have not changed so much in the past 12 months. When the Chancellor looks at this so-called buoyant revenue he is very much aware—and I should be surprised if he was not always very much aware—how much this means in changing prices, and his estimates of future expenditure take those changes into account.

Mr. Nott: I can only say that the present Chancellor clearly was not aware of it, because at the beginning of 1974 he said that he would have a borrowing requirement of about £3 billion, and the out-turn was £10 billion. What has happened during the past year underlines my point that members of the wage-earning community have been making additional wage demands, and that this has increased the Chancellor's borrowing requirement far beyond the figure he ever expected.
I think that the private consumer has been successful in resisting the Chancellor's intention up to now simply through increased wage demands. But the process has been very inflationary. It has encouraged higher spending in the public sector than the country can afford.
Within the tax system there has been a massive redistribution which has seriously hit the poorer sections of the community and the pacemakers, which I think was the point made by my hon. Friend the Member for Havant and Waterloo. Those are the two parts of the community which have been worst hit. Those around the tax threshold and those on higher marginal rates have suffered most of all while this process of redistribution has been going on.
5.15 p.m.
The Minister of State quoted the amount of income tax paid over the years by persons on average earnings. He rightly said that it had gone up and up in percentage terms. If he had taken those on the higher rates and those who have been around the threshold, he would have found that the percentage of tax they have paid has increased by an even greater amount than the middle band of taxpayers to whom he referred.
The great mistake made in the latest Budget was that the Chancellor used his tax buoyancy to finance more subsidies to paper over the cracks—an additional £1,400 million of subsidies on food and housing—instead of using it to reduce expenditure or, in normal time, use it to raise tax allowances.
The Government often rest their case on the argument that when the Chancellor faces an increasing borrowing requirement it makes no sense to restrict his room for manoeuvre. That traditional argument against indexation has lost much of its force. It is a misconception to believe that the Chancellor gets away with it. I think that over a period of time the consumers put themselves back in the position they were in before. They claw back in money terms the increased revenue which the Chancellor believes he has taken from them. The Government plan more expenditure than they can afford, and the strong maintain their incomes at the expense of the weak and those on the higher taxable incomes. That is a redistribution which can hardly be justified on any grounds.
There are many objections to the indexation of allowances. The arguments go both ways. But if we continue with the present system, whereby we leave it entirely in the present Chancellor's dis-

cretion whether he raises the tax allowances, in the end those who are in strong trade unions will continue to benefit at the expense of other equally deserving sections of the community.
As the year goes by, if inflation continues at its present level, there will be an increasing demand for indexation of the tax allowances, simply because it will be claimed that in the end this will be fairer than allowing the kind of redistribution within the tax system which is now going on.
I do not know whether my hon. Friend the Member for Blaby wishes to divide the Committee on these amendments. It has been a useful debate. I invite my hon. Friend to comment on what I have said. As he did not agree with certain comments that I made recently, I shall be interested to hear whether he disagrees with what I have said today.

Mr. Lawson: I indicated when moving the amendment that I did not intend to press it to a Division. I was concerned with having a debate on the matter of indexation, which was involved in this series of amendments. We have had that debate, and in a moment I shall seek leave to withdraw the amendment. But first I should like to say a few words.
I am glad to say that I find myself in far less disagreement with my hon. Friend the Member for St. Ives (Mr. Nott) today than I did in the Second Reading debate. I do not wish to take issue with much of what my hon. Friend said, but briefly I take issue with what was said by the Minister. The Minister, when talking about inflation and fiscal drag, which is largely inflation, said that 81 per cent. of the increase in the yield of income tax of £3,771 million was due to inflation. That is approximately £3 billion. To be fair, I think that that slightly overstates the position. It must be accepted that pro rata the yield will go up with inflation. We must be concerned with the way it goes up more than proportionately—namely, the gearing effect.
It is, of course, a nonsense to say that the broadest backs are bearing the burden when we take into account not only the high marginal rates but those who will be brought into tax this year on incomes which in real terms are no higher than incomes which last year were considered


so low that they should not be brought into tax at all. That has happened because the personal allowance is not increasing proportionately with inflation. The people who will be less affected will be those in the middle, the people who the Chancellor was accusing of getting the plums in terms of wage increases.
The question is whether the revenue which has to be raised is to be raised by direct taxation, personal income tax or indirect taxation. I think that there is still a degree of naivety amongst the public. The public see, for example, rates and vehicle excise licence duty increasing explicitly. They see the effect of that more clearly and more vividly than they notice the insidious increase in the burden of income tax through inflation.
Is it conceivable—certainly the Chancellor did not give the impression that this is what he was doing when he made the Budget broadcast to which I referred—that a Chancellor, faced with the need either to cut back public expenditure or to increase taxation by a certain amount, would explicitly say "I shall do nothing about it by cutting public expenditure, I shall do very little about it by increasing indirect taxation."—in real terms that has gone up only very slightly—" I am going to do virtually all of it by increasing personal income tax." I do not think that he would have come to the House to say that. I believe that he would have acted in a more balanced way by making some cuts in public expenditure.
I remain unconvinced by what the Minister has said, but in the interests of progress I beg to ask leave to withdraw the amendment.

A mendinent, by leave, withdrawn.

Sir John Hall: I beg to move Amendment No. 31 in page 17, line 30, leave out '£1,000' and insert '£1,200'.

The First Deputy Chairman: With this it may be convenient to take the following Amendments:
No. 32, in line 31, leave out £1,000' and insert £1,200'.
No. 33, in line 37, leave out £500' and insert £600'.

Sir John Hall: These amendments refer to the surcharge on investment which has been the subject of considerable debate in the past two Finance Bills.

Perhaps it is as well to remind ourselves of the background to the surcharge. All too frequently we lose sight of the origin of some of the worst kinds of taxes from which we suffer today.
Hon. Members on both sides of the Committee will know that the surcharge was first introduced by the Conservative Government who introduced the unification of the tax system. That was a change in our tax system which was generally welcomed by both sides of the House. At that time the surcharge started at £2,000 at 15 per cent. Even at that time I seem to remember that there was some debate whether that was the right figure. There was debate whether it was too low and some suggested that the surcharge was too high. Whatever may be the argument, there is no doubt that we would have to increase that figure substantially if we intended to maintain its true value in terms of the falling value of money.
In the first Finance Bill that was introduced after the change of Government it was attempted to reduce the ceiling to £1,000 and £1,500 respectively on the lines which are outlined in this Clause, to which the present amendments are directed. Fortunately, through an amendment moved by the hon. Member for Cornwall, North (Mr. Pardoe), which was strongly supported by the Conservative Opposition, that attempt was defeated. However, we were warned that the Government would attempt to reintroduce that measure on the next suitable occasion. When we came to the now notorious Finance Bill of November 1974, on which so many members of this Committee spent so many weary hours throughout the days and nights, the Government reintroduced their proposal to reduce the figure to £1,000 and £1,500 respectively.
When the Chancellor announced his intention to reintroduce these reduced rates or ceilings, he said:
the burden of personal tax should fall that much more heavily on investment income than on income which is earned by current effort.
I find that a curious statement and an extraordinary philosophy for a Government who are urging people to defer current spending and to save. When those savings, on which tax has been paid, accumulate to a point when they earn income in excess of £1,000, savers


are to be penalised by an additional surcharge over and above the ordinary tax. Apparently the slogan is "Save—but do not save too much." It seems that if people save too much they will, to use the fashionable word which we have heard on several occasions in Finance Bill debates, be clobbered by additional tax penalties.
The Chancellor said at the same time:
There must be room for those at the bottom to see their living standards rise. This means sacrifices for those at the upper end of the scale."—[Official Report, 12th November 1974; Vol. 881, c. 274.]
That remark must have left a sour taste in the mouths of those living on investment incomes considerably less than the wages of many workers. Hon. Members will remember that several amendments were tabled which were directed towards lifting the burden of the surcharge from those who through disability or through personal circumstances were severely restricted in earning capacity and who found this additional impost a hardship. The amendments—in fact I moved one myself—were treated with considerable sympathy. The Chief Secretary expressed his sympathy as regards our attempts to relieve the burden on those socially disadvantaged. However, the amendments were all resisted. We are now faced with exactly the same situation at a time when severe inflation is creating a growing and dangerous position for the people.
It is true that the changes in allowances introduced by the present Budget have had some effect upon married couples with incomes of up to £2,500 and on single people with incomes up to about £1,200. Those modest concessions to the ravages of inflation apply to everyone equally and not only to those who have to pay a surcharge on investment income. The amendment which I moved during the course of the last Finance Bill was designed to help the disabled. I quoted several cases which I discovered in my constituency. I refer to one such case today. I want to explain to the Committee the effect of the present tax.
5.30 p.m.
Let us take a single woman who at one time was a well-paid, highly skilled professional person until she became crippled and unable to work. Let us say

she lives on an investment income of £1,700. In 1974–75 she would have paid £424·75 in tax. In 1975–76 she will pay £428·75—an increase of £4, even taking no account of the effect of the investment surcharge. This is due to the fact that the benefits which follow from the improved allowances tail off for single persons just before they reach £1,200 a year. A single person with an income that is all earned will pay tax of £358·75—£70 less than the single person with no other source of income except her invested income, and a person who is unable to go out to work, however much she may now wish to do so
A figure of £70 does not sound very much, but for a person with a total gross income of £1,700—less than £1,300 after tax—it means the difference in winter between being warm and cold, between having a new coat and having to put up with an old coat year after year. It is a considerable sum of money for somebody on a small income with no chance of earning anything else. Furthermore, at a time of inflation which eats still further into that income, that woman is being penalised by that additional surcharge and is being lumped together with those who are better off and who are being asked to make a sacrifice. She finds that hard to bear.
I am sure that Members on both sides of the Committee could give many examples of persons living on modest investment incomes who are finding themselves unjustly penalised both by the surcharge—and, if they are single, additionally penalised by the increased tax under the Bill.
These amendments are extremely modest. I do not know the cost involved, but it cannot be high. No doubt we shall hear from the Minister. The amendments are designed to offset in some small part the unfair penalty borne by many taxpayers and seeks to draw attention to the impact of inflation, which increases the burden people have to bear. Therefore the surcharge in its present form is unjust, and the destructive effect of inflation makes it doubly unjust. I commend the amendment to the Committee.

Mr. David Mitchell: We are debating an additional tax on investment income. I am reminded of the phrase "They also serve who only stand and wait". They certainly also serve the


British economy who only supply the money to keep the industry going, to modernise it, and to invest in its plant and machinery—investment which economists and the Treasury Bench so often inform us is the prime need of British industry at present.
Industry is a partnership involving skilled labour, motivated management and capital. One wonders why the Government believe that such a savage investment surcharge is desirable. It is a special tax on investors, on savers, on the thrifty—those who forgo consumption. What have they done to make their case so undesirable? Surely in a country such as ours, which is so desperately short of capital and investment, these are the people whom we should be encouraging rather than discouraging. I wonder why their activities are regarded as so undesirable and why the Government are seeking to dry up this source of funds for British industry? So successful have the present Government been—and indeed this applies to their predecessors—that over a period of time we are increasingly having to look to the oil sheikhs and to others to provide the essential investment so desperately needed by British industry.
Who are these people who are being penalised by this tax? Are they the rich? Are they those in the middle income group? Are they those on the national average wage? Let us look at the figures. The national average wage in March was £60·08p per week. The national average wage for manual workers was £54·65p. Yet here we are seeking to levy an additional tax—a surcharge—on those whose income from investments exceeds £20 a week. Surely that is not the right course to take when we should be seeking to encourage savings, thrift, and the creation of investment capital. I believe that we should now be debating an amendment that is far more radical in its terms than the present proposal which is before us.
Let me tell the Committee who are the people affected. They are widows living on their own, widows with children, the disabled, pensioners living off their life savings. They are the people who face ever-increasing costs, soaring rates, increasing food costs, cost of living rises and who find pressures increasing all the time. I regard the amendments as too

modest, and I hope that next year we shall take the matter even further.
A further category in this group who will suffer comprises the retired small business man. I refer to the shopkeeper, the market gardener, the business man with a small engineering works who has no children to whom to hand on the business but who has built up his business during his working life and who has sold it for the purpose of living on the proceeds during retirement. He has that golden nest egg resulting from the sale of his business. But those savings, accrued through a lifetime, become liable to capital gains tax on a sale, and when the money is invested it then becomes liable to an investment income surcharge on any figure above £20 a week.
Let us make a comparison between the position of the people I have mentioned and, say, the well-heeled senior civil servant, the ex-minister, the bank manager—people who throughout their lifetime have relied on their employers to provide the basis of their superannuation and who do not have to pay a surcharge on income. It is the man who has saved his money and invested it who is clobbered by this legislation. It will also hit the selfemployed—those who do not have an employer to pay into a pension fund. Those same people may have built up their savings by investing throughout their lives perhaps in Government stock—poor misled fools though they may be. I repeat that they are the people who are being clobbered today.
Therefore the amendment is an made quate attempt to reduce the attack on the self-reliant, the thrifty saver and the investor. It is wholly in the national interest as well as in the interests of these people that we should not clobber investment savings. Therefore, I hope that the Committee will accept the amendment and next year I hope that we shall propose a more radical amendment to get at the root of the country's problems and to encourage investment, saving and thrift.

Mr. John Ryman: I should like to make one short point, about which I am puzzled. I have never understood why there should be some sort of moral and physical distinction between earned and unearned income as regards taxation. I am no economist. Nor am I an expert on financial affairs—unlike most members


of the Committee. Using the criterion of common sense, it seems to me that if a person derives an income from a job on which he is currently engaged, or if he is too old or too sick to work and therefore receives an equivalent income from investments, it is wrong to tax those two sources of income in different ways.
Throughout the years, the Conservative Party have adhered to that distinction in their own fiscal policies. That has been done by many Conservative Chancellors of the Exchequer. It ill becomes the Opposition now to make the pathetic exaggerations such as those made by the hon. Member for Basingstoke (Mr. Mitchell), because Tory Chancellors in the past have paid lip service to this distinction which, I respectfully suggest, cannot be defended on the grounds of common sense.
What is the difference between a man who earns money and the man who works, saves money, retires and who in subsequent years derives the income from the money which he has saved as a result of his hard work in the form of what is euphemistically called unearned income? I do not see the moral distinction.
In the past, all political parties were guilty of believing that there was something inherently more noble in working and collecting money than in working at one time, saving, and collecting the money in a different form. They have therefore given it the somewhat ignoble title of "unearned income". Of course it is earned. But it is earned in a different way. It is earned because of the efforts which took place before the money was invested.
I recognise that there is a distinction to be drawn. If somebody inherits a large sum of money by way of a pecuniary legacy the legatee has done nothing to earn that money. He was lucky in the sense of being a legatee. Therefore, that money, which is invested in stocks and shares, yields an unearned income. A distinction can apply in those circumstances because the money was not earned by the person concerned. The income is therefore truly unearned income, although the capital was earned by the testator who left the money.

Sir John Hall: In the case of inherited wealth the chances are that the legatee

will have paid a swingeing rate of capital transfer tax, thus considerably reducing the capital on which he will later enjoy the unearned income. To that extent he will also have suffered a large financial penalty.

Mr. Ryman: The estate of the deceased person will have borne that tax. However, the result is that the legatee will still receive a capital nest egg. This is playing with words. The money is earned in the sense that the legatee will not have made any effort to earn the money. That is another case.
I suggest that there is no merit in distinguishing between a person who works and earns money, and receives it at the end of the week or month, and a person who works, invests his earnings in equities, retires, and seeks to derive the benefit of his previous work in the form of unearned income.

Mr. David Mitchell: The hon. Gentleman said that my comments on the amendment were exaggerated. Will he explain why my tentatively suggested course, which was less strong than his, was exaggerated, yet his more powerful suggestion ceases to be exaggerated?

5.45 p.m.

Mr. Ryman: The hon. Gentleman has totally missed the point I sought to make. I am not suggesting a measure more powerful than that which was suggested by the hon. Gentleman. I expressed surprise, as a layman in these matters, about the fundamental distinction between earned and unearned income. The criticism which I levelled at the speech of the hon. Member for Basingstoke was on that basis. He mentioned deserving members of the community such as widows, the disabled, the sick, the retired, who live on small investment incomes. All hon. Members acknowledge that it is contrary to common sense and fairness that people living on small fixed means should be taxed to such an extent that their inadequate investment income is incapable of surviving the ravages of inflation. I hope that there will be no dispute about that proposition. I thought that the hon. Gentleman exaggerated and sought to make phoney, dramatic forensic points. He asked rhetorically, "Why is there no investment in British industry today? Why have we arrived at the position when we


must rely on the sheikhs and the other wealthier sections of the community to provide investment for British industry?".
I shall give one answer from the point of view of the small investor. Despite two booms on the stock exchange in the past 10 years, many small investors have seen astronomical crashes, by comparison with the Financial Times ordinary share index, in the past few years and have seen the advice given to them by reputable stockbrokers go wrong. That has been the experience of many small investors.
One of the reasons why they will never again invest on the stock market is that there are far better propositions in which to invest than the stock market. The property boom of 1972, and the booms in works of art, antiques and other commodities have shown small investors that in future they will be better advised not to put their modest savings into the hands of the avaricious gentlemen who run unit trusts or the glib stockbrokers who make sweeping recommendations about shares in Australia and so on. Those small investors have burnt their fingers badly in the past few years.
The reason for that has nothing to do with the Labour Government or with Socialist policies. It has to do with the unlimited permutations and uncertainties of the stock market, which is subject to international influences and the inherent excesses of capitalism, so forcibly demonstrated during the period of the Conservative Government under the right hon. Member for Sidcup (Mr. Heath) between 1970 and 1974. At that time there were occurrences such as the Lonrho scandal and the hugh tax repayments in the Cayman Islands to gentlemen connected with that company, as well as the beginnings of the Sir Denys Lowson scandal and revenue scandals in the City. Those occurrences greatly alarmed the ordinary people. They will take their savings elsewhere, if they can muster any savings, rather than go through the experience of losing their hard earned savings because of astronomical reductions in the Financial Times ordinary share index, which have repeatedly occurred.
I know of many people in fairly humble circumstances who used to invest in a small way in equities and who have sworn never to do so again.

Mr. Crawford: The hon. Gentleman will be aware that his own party is not without a hint of scandal.

Mr. Ryman: Will the hon. Gentleman be a little more specific about the matter to which he is referring?

Mr. Crawford: The hon. Gentleman will know to what I am referring from his own part of the country.

Mr. Ryman: I do not. If the hon. Gentleman would like to make clear to what he is referring, I shall then know. I was referring to financial scandals in the City of London.

The First Deputy Chairman: Order. I think that we are getting rather wide of the debate. Alleged financial scandals do not enter into it. Perhaps the hon. Gentleman would address his mind to the amendment.

Mr. Ryman: I am sure that the Government will want to be helpful about this matter. Dealing with a surcharge on investment income must involve the proposition that the investment income is susceptible of a surcharge. There must be an inherent reason for introducing a surcharge on investment income rather than a general increase in taxation on all income, earned or unearned. That is the proposition to which I wish to address myself.
I suggest that we should not look at this amendment in the context, is the amount specified adequate or inadequate? If the speeches by hon. Gentlemen opposite are correct, there seems to be no merit in limiting the sum to £1,200 rather than to i1,000 a year. In today's financial terms that is a drop in the ocean. It is a fleabite. It is useless. Why make this footling little amendment if the object, even if it is accepted, is to change the sum by such a small amount? Either there is a question of principle involved or there is not. If the principle is right, the proposers of the amendment should have the moral courage to say so and to stand up for a much larger figure than the example that has been given. They cannot have it both ways. That is the way that I put it.

Mr. Peter Rees: I have been encouraged by what was said by the hon. Member for Blyth (Mr. Ryman) to make a short intervention. I


had not proposed to do so, because many of the propositions which should be canvassed on this occasion were canvassed, if my memory serves me right, in December and January. No doubt as long as we enjoy, if that is the correct verb, a Socialist administration, we shall come back to these same points again.
The one valid point in the contribution made by the hon. Member for Blyth—the effect of the ravages of inflation and of stock market fluctuations on those with investment incomes—was unfortunately overlaid by a lot of irrelevant distractions. Indeed, the hon. Gentleman tried to attribute to the last Conservative administration certain incidents not yet fully explored in the City and other places. I am sure that he is aware that not all who do not pay their due measure of tax are necessarily to be found voting the Conservative ticket. They can be found in the hon. Gentleman's part of the country. Indeed, I was surprised that he showed such complete ignorance of the point made by the hon. Member for Perth and East Perthshire (Mr. Crawford). It would be inappropriate—no doubt I should be called to order—to explain in words of one syllable why we on this side of the Committee hear with a certain scepticism and distaste that kind of charge coming from the hon. Gentleman.
The valid point made by the hon. Gentleman, which I warmly commend—I shall wait to see how he votes on the amendment in view of what he said—was that the distinction between earned and unearned investment income is now largely meaningless.
The distinction was introduced some time before the First World War. I entirely agree that it has been perpetuated by Liberal, Conservative and Socialist Chancellors of the Exchequer. But we hope for an entirely fresh approach to the whole problem if, as the Government have promised, they are to introduce a wealth tax.
Some countries have followed our pattern and discriminated in a fiscal sense against investment income by imposing a heavier burden of income tax. Other countries have chosen to introduce a wealth tax. I hope that we shall have opportunities to debate the relative merits of those methods of taxation. It is clear beyond peradventure that there is no case

whatever for a wealth tax and a heavier burden of income tax on investment income. Again, when we come to that question, I shall look with interest to see how the hon. Member for Blyth votes.
If Chancellors of all parties have perpetuated this fiction, it is fair for the Opposition to observe that Chancellors of a Conservative complexion have been a little more tender to those who enjoy investment income. Indeed, Lord Barber lifted the starting point for the increased burden in his Budgets of 1972 and 1973. We feel that it is a retrogressive step, against which we must make our protest, that the starting point should be brought down again, particularly in a period of inflation.
It is trite to observe that inflation, in an uncontrolled and entirely haphazard way, redistributes the wealth of the country. It is also fair to observe—I am sure that it will not have escaped the hon. Member for Blyth—that on the whole organised labour, even in a period when inflation has been running at 25 per cent., has not done badly for its members. I am not complaining about that. It is the duty of unions to protect, as best they can, the interests of their members. But I feel that they use illegitimate methods. I think that the hon. Member for Blyth will agree that their tactics have at times gone beyond the permissible. What cannot be denied is that, with inflation at 25 per cent., the only section of the community which has kept its head above water and not lost ground is that which is represented by the powerful trade unions, because it has enjoyed wage increases of 30 per cent. and sometimes more.
The persons in our community who have undoubtedly suffered are those who depend on investment income. I challenge the hon. Member for Blyth or the Minister who is to wind up the debate to tell us of many of those who depend on investment income who can point to increases in income, even before tax, of more than 25 per cent. There are very few. Most, as the hon. Member for Blyth fairly pointed out, have watched their income and capital dwindle. In a period of rapid inflation they have, in a sense, been paying a wealth tax, because the net income that they receive does not to any degree compensate them for the reduction in their real wealth.
I could construct a reasonable case, which I am sure would carry the hon. Member for Blyth with me, for saying that the burden of tax on investment income should be lightened, not increased, in this Budget. Perhaps in these hard times it would be too much to expect the Treasury to do that. But perhaps Treasury Ministers recognise the burdens being carried by those who depend on investment income. They may not be found in great numbers in constituencies represented by Members of the Treasury Bench. But, speaking for myself and others of my right hon. and hon. Friends, all too often we encounter people whose real standards of living have been dramatically eroded over the past 12 months and who can look forward to no alleviation whatsoever over the next 12 months They are the real victims of the total failure of this Government to come to grips with inflation. They are the people who, year by year, watch not only their net income but their capital assets dwindle away.
6 p.m.
I am particularly concerned that people who depend on investment income should be safeguarded. We may be able to do nothing about the value of their capital assets but at least we can make certain that their net income after tax is not savagely eroded as it has been and is likely to continue to be. We can make certain that ill-considered measures of the Government do not harm them further.
I have had certain passages of arms with the Chancellor. I believe that he operates all too often through ignorance and not through malice. I hope that the Minister of State, who has a little more experience as an entrepreneur when he is spared from the Front Bench, and his right hon. Friend the Chief Secretary, who we know has experience as an accountant, no doubt advising those who have to depend on investment income and have to manage businesses and farms, will be able to go away from our debate and convey to the Chancellor, who has not chosen to grace it, that there are some genuinely hard cases of which he must take account.
I encounter all too often in my constituency people who over a lifetime have contributed to the community in business or the public service and who have retired

on a modest competence. They have looked forward to a reasonably comfortable old age but they have been hit particularly hard by inflation. Their position has not received the recognition it deserves in this Finance Bill, in the previous Finance Bill or in the one before that.
The hon. Member for Blyth taunted us for putting forward too modest an amendment. That is a charming and amusing taunt from the Government side of the Committee.

Mr. Ryman: Before the hon. and learned Gentleman obscures the one good point he made about 10 minutes ago by a mass of partisan forensic rhetoric, will he deal with this one point? Is he in principle advocating the total exemption of unearned income from an investment tax, or is he saying that the present level of investment surcharge is too high? One has sympathy with people on fixed incomes who suffer in these circumstances. Is the hon. and learned Gentleman saying that their investment income in effect should be tax free or that it should be taxed at a different level from that proposed in the Bill?

Mr. Rees: Sometimes I lapse into obscurity, but I hope I have made clear my argument beyond doubt even to the hon. Member for Blyth (Mr. Ryman). I am saying that when we debate the wealth tax there will be a case for lifting the investment income surcharge. There will even be a case—which I shall be happy to deploy—depending on the form of the wealth tax, for lifting income tax altogether from investment income because there will be another way in which those people can make their due contribution. At this juncture in our affairs I do not believe that the people who depend on investment income would wish entirely to dissociate themselves from our national misfortunes. They recognise that they have a contribution to make.
As the people who depend on investment income of all categories of our community feel the ravages of inflation—to a greater degree even than those who are fortunate enough to be represented by the powerful trade unions—there was no case for the Chancellor to do what he did in his previous Finance Bill, which was to bring down the starting point to


£1,000 a year. There is a case for treating these people with a measure of kindness which they have not yet experienced from the present administration. I support warmly and enthusiastically the modest amendment and on that hope that I carry the hon. Member for Blyth with me.
I encounter this kind of case in my constituency, as no doubt does my hon. Friend the Member for Thanet, East (Mr. Aitken), because we represent favoured areas in which people after a lifetime of unremitting toil choose to retire on their modest savings.

Mr. Jonathan Aitken: indicated assent.

Mr. Rees: We encounter these cases every day in our constituencies, and we feel that there is no case for the ignorant, destructive approach shown by the Government to those who rely on investment income. Therefore, we support this modest measure of relief and we hope to carry with us the hon. Member for Blyth not only forensically and rhetorically—we have heard his rhetoric—but in the Division Lobby.

Mr. Sheldon: The debate has taken longer than I expected, bearing in mind that we have debated these matters at some length over the past few months. I am surprised that my hon. Friend the Member for Blyth (Mr. Ryman) wishes to clarify the distinction between earned and unearned income or, in modem parlance, between earned and investment income. The hon. and learned Member for Dover and Deal (Mr. Rees) called that distinction a meaningless one.
Unearned or investment income derives from a wide range of capital sources. Savings go towards making that capital, and we regard savings as important. What was said by the hon. Member for Basingstoke (Mr. Mitchell) is important in that regard. There are other sources of capital—for instance, bequests, and the natural increase in capital that comes from good and sensible further investment. I note what my hon. Friend the Member for Blyth said about the rises and falls of the stock market and its resulting unattractiveness for certain forms of investment.
I take issue with the hon. and learned Member for Dover and Deal. The distinction between earned and investment income is still meaningful. It has changed somewhat over the years and people recognise that there is not quite the same distinction in days of inflation as there was before inflation. It is true that investment income is a more certain form of income, but it fluctuates and diminishes as a result of inflation. The essential distinction remains that in considering the means of an individual it is insufficient to consider merely his income. It is an inadequate representation of the amount of wealth owned by a person. The capital standing behind the income represents a much more advantageous form of wealth. That principle has been accepted for decades, irrespective of the Government in power.

Mr. Peter Rees: May we take it from what the Minister says that if the Government, as promised, introduce a wealth tax we can expect a lifting of the investment income surcharge and possibly of all income tax on investment?

Mr. Sheldon: The wealth tax will have a considerable bearing on the investment income surcharge. The two forms of taxation will relate to each other. It is too early to give decisions as the Select Committee is still in the process of receiving evidence and has yet to deliberate on the forms of taxation that might be possible. But clearly the interrelationship is an obvious one which will have to be examined.
The hon. and learned Member for Dover and Deal talked about the burden on those with investment income. Of course, we all have our own examples of those people with whom we would obviously have sympathy. The difficulty is, and it is a straightforward one, that there is a need for revenue. The hon. Member for Wycombe (Sir J. Hall) asked about the cost of the three amendments. It would be about £22 million and it is difficult to agree to concessions, reliefs and beneficial changes at a time when the need for revenue must be paramount, as my right hon. Friend the Chancellor has said more than once. On this basis it is not surprising that the burden will fall more heavily on those with investment income than on those with only earned income.
I would put that further point to my hon. Friend the Member for Blyth. This distinction has always existed. It remains now and it must be considered. The hon. Member for Basingstoke (Mr. Mitchell) talked about the need to encourage people to save, but it cannot be taken for granted that people with an investment income have no other income. The retired, for example, will normally have their State pension and frequently a private pension. When the hon. Member for Basingstoke refers to the problems of those with investment income, he must bear in mind that many of these people will have other forms of income which must also be included. At a time when the economy requires considerable contributions in revenue, this source must also be regarded as important.

Mr. Ryman: My hon. Friend said that those living on unearned income and therefore subject to this investment tax may also in particular cases have other sources of income. Does he not appreciate that for tax purposes those other sources of income are added to the income from the investment? The individual in practice therefore is no better off on the totality of the tax which then has to be paid. What is the point of mentioning other sources of income unless it is to suggest that these people would as a result of that income be better off, when in practice they would not be better off because the total tax paid would be greater?

Mr. Sheldon: The point I was seeking to make was that the investment income in excess of £1,000 attracts the investment income surcharge, but that does not preclude a person from having other sources of income on which such a surcharge will not necessarily be imposed, if it is earned income, for example. There is no obvious need to adjust these levels each year—

Mr. Lawson: Yes there is.

Mr. Sheldon: I know the hon. Member's point and doubtless he will enjoy himself in the debate we are to have on indexation. He can deploy his arguments then.
The fact that the Chancellor did not seek to raise the investment income threshold was not an oversight—

Mr. Peter Rees: It was a mistake.

6.15 p.m.

Mr. Sheldon: The hon. and learned Member can call it a mistake if he likes, but it was not an oversight. Had the threshold been indexed there would have had to be an alteration. In a situation where the requirements of revenue are so great it has had to play its own part and make its own contribution.

Sir John Hall: What is the fundamental difference between income which is enjoyed by someone who is retired on a pension which has been created out of savings from an income, and someone who is retired and then has an investment income on which the surcharge is payable? The two seem to be on all fours, but one person would pay a higher rate of tax than the other.

Mr. Sheldon: Obviously one would naturally hope to give more help to retired people. I thought I had answered this point on three previous occasions when I said that these people paying the investment income surcharge have at any rate the advantage of that capital behind them. Clearly, a person with income derived from capital is in a better position than the person whose income is derived from earnings.

Mr. Lawson: In which of those categories does the Minister place a person with a very valuable pension right?

Mr. Sheldon: The person with a valuable pension right has nothing once that pension has been used. He has nothing to pass on to his family or anyone else. Therefore, the person with income derived from capital is in a better position than the person who has only an income in the form of a pension right. I would have thought that was obvious. The debate seems to me to be reaching a rather elementary level. I hope that the hon. Member for Blaby will consider the other points we have dealt with and which will be discussed further in the forthcoming debate on indexation.

Mr. David Howell: We have been discussing a modest amendment. Some hon. Members might have thought it too modest, and it is certainly extremely modest when set against the astronomical figures which the Minister of State gave us earlier for the extra tax which will be raised this year compared


with last. He told us that an extra £3,771 million is being raised in tax this year, of which about 19 per cent. or, roughly speaking, everything over £3,000 million, will arise because the standard rate is increasing from 33 per cent. to 35 per cent. It is worth pondering on the remarkable qualities of this figure. About £3,000 million is being handed over this year from taxpayers to the Revenue silently, without announcement, without parliamentary debate, without public decision, without policy proclamation and without the sanction of Parliament—simply as a result of the combination of inflation and "fiscal drag"—which itself is the outcome of inflation, anyway.
That is a remarkable fact, and if nothing else has emerged from our debates, the fact that that amount of money is being paid without the knowledge, debate and sanction of Parliament is enough to make most people wonder where our finances are getting to with the present rates of inflation.
We are concerned with those who have some investment income and who will be paying more anyway because the tax rate has gone up from 33 per cent. to 35 per cent. People with £1,500 or £2,000 investment will pay more immediately, anyway. After the first £1,000, they will be into the 45 per cent. bracket, and after the first £2,000 they will be into 50 per cent.
It is a sobering thought—although not a new one—that in this nation now anyone with £2,000 investment income and a state pension is into the 50 per cent. tax bracket once one takes into account the £675 single person's allowance. That is an extraordinary fact. With the inflation rate of the past year of 21 per cent., such a person's position is not just a little worse because of the tax rate changes; it is much worse. Those people have moved back a long way, even compared to last year. In relation to the year before, when there was a £2,000 threshold which the Government brought to an end in dubious circumstances in the autumn, they are substantially worse off—far worse off than many other groups, I suspect, and far worse off than those who have obtained pay increases in line with or ahead of the rate of price increases.
I have talked so far about everybody—workers or retired. Admittedly the Minister did not say it, but some will say that Clause 29 provides the wonderful new age allowances which improve the position of those receiving investment income and who are over 65. I am not sure that even their position is much helped. First of all Clause 29 does nothing for those under 65, for women of 60, for the 55-year-old man who is thinking of moving towards retirement and has saved a little to provide for or to supplement his pension, or for the self-employed who have to save for their own pension. The self-employed have no pension scheme. They are not in the happy position of the public servant, who has an unfunded but totally indexed pension to look forward to.

Mr. Ryman: Why does the hon. Gentleman say that the self-employed have no pension scheme? Any prudent self-employed person has abundant facilities under the 1956 Finance Act to provide for a pension scheme.

Mr. Howell: I am not sure that the word "abundant" is the one that I would choose. Pension schemes may exist for some in self-employment but for many they do not. Those are the people who suffer directly as a result of the surcharge.
There is nothing in Clause 29 to help women between 60 and 65 or widows who are younger. Indeed, the bizarre position arises not only that one can pay 50 per cent. marginal tax rate when receiving between £2,000 and £3,000, but also that national insurance pensions plus some graduated pension by themselves take the recipient into tax, because the personal allowances have not been raised for the under-65s. Nor does Clause 29 cover the disabled, the blind, or widows. In short, it does nothing at all to offset the cruel increase in tax which results from the decision to lower the threshhold to £1,000 and the decision this year not to modify it, despite the 21 per cent. decrease in the value of money.

Mr. Nicholas Winterton: Does my hon. Friend agree that the Government's attitude to investment income is a direct contribution to inflation, because instead of saving or investing, people will now spend everything they have?

Mr. Howell: That is part of the credo of the present Government, as they have made clear on the investment income surcharge and other tax proposals. Their motto is, "You do the spending, and saving will be enforced through taxation."
Even for those over 65 who can satisfy the criteria of Clause 29 over the two-year period, 1973–75, I doubt whether there will be any real increase in the income of those drawing a modest investment income over and above the State pension, or even without it. At a level of £2,000 investment income I do not think that there will be any real gain for a single person. The gain in real terms for a married person will be very small and in some circumstances nonexistent. So I trust we shall not hear too much of the assertion that Clause 29 invalidates our case.
Finally, there is the argument that I did not think we would entirely avoid from the Minister, about inherited wealth: "We cannot do anything about investment income because, although some of it is the hard won savings of those who have saved in their lifetime, others may be getting it from inherited wealth, and we cannot have that." I do not share the Government's distaste for all forms of inherited wealth, but that is their position, and they have pursued policies in its support.
But one thing has certainly changed since the debates on this subject in January, let alone those on the last Finance Bill, last summer. Now we have the capital transfer tax. We never said that it would not be an effective tax. On the contrary, we said that it would block up the processes of inheritance so effectively that it would destroy small businesses and damage employment prospects in many areas. That is a devastatingly efficient means of attacking the processes of inheritance, which hon. Members opposite find so abhorrent.

And if that does not do the trick, there will soon be the wealth tax to help.

I was interested to note that the Minister of State sat on the fence on the question of the investment income surcharge being an alternative to company taxes. He did not want to use the word "alternative". He used phrases like "in relation to each other" and all the other weasel words which shower out of Treasury briefs. But the case for the surcharge is much weaker than it was, and it is getting weaker still. The argument that this was a means of carrying through social justice and the case for equality has been vastly undermined by the fact that we now have the attack on wealth and capital, and the transfer of capital by other means. So that side of the argument falls away.

On all these grounds, we believe that the case for some modest adjustment for those in this group—the disabled, the blind, those saving up for themselves, the widows and many other disadvantaged groups—who have seen their standard of living slipping away, is strong. We are obviously restrained by the revenue consideration—although, as my hon. Friends have said, the other side of the equation is public expenditure, which so far has been neglected by the Chancellor. Nevertheless, we are restrained to some extent by the revenue consideration.

Even so, in the light of all that has been said, and in the light of the weakness of the argument of the Minister of State, I strongly advise the Committee to press this matter to a vote, and I hope that my hon. Friend the Member for Wycombe (Sir J. Hall) will support me in this matter.

Question put, That the amendment be made:—

The Committee divided: Ayes 151 Noes, 172.

Division No. 211.]
AYES
[6.30 p.m.


Adley, Robert
Butler, Adam (Bosworth)
Corrie, John


Arnold, Tom
Carlisle, Mark
Costain, A. P.


Atkins, Rt Hon H. (Spelthorne)
Chalker, Mrs Lynda
Crawford, Douglas


Bennett, Sir Frederic (Torbay)
Churchill, W. S.
Crouch, David


Benyon, W.
Clark, Alan (Plymouth, Sutton)
Dean, Paul (N Somerset)


Biggs-Davison, John
Clark, William (Croydon S)
Douglas-Hamilton, Lord James


Boscawen, Hon Robert
Clarke, Kenneth (Rushcliffe)
Drayson, Burnaby


Bowden, A. (Brighton, Kemptown)
Clegg, Walter
Durant, Tony


Brittan, Leon
Cooke, Robert (Bristol W)
Dykes, Hugh


Brotherton, Michael
Cope, John
Elliott, Sir William


Buchanan-Smith, Alick
Cordle, John H.
Emery, Peter


Budgen, Nick
Cormack, Patrick
Evans, Gwynfor (Carmarthen)




Eyre, Reginald
King, Tom (Bridgwater)
Rifkind, Malcolm


Fairgrieve, Russell
Langford-Holt, Sir John
Roberts, Wyn (Conway)


Farr, John
Lawrence, Ivan
Rossi, Hugh (Hornsey)


Finsberg, Geoffrey
Lawson, Nigel
Sainsbury, Tim


Fisher, Sir Nigel
Lester, Jim (Beeston)
Scott-Hopkins, James


Fletcher-Cooke, Charles
Lewis, Kenneth (Rutland)
Shaw, Giles (Pudsey)


Fookes, Miss Janet
Luce, Richard
Shelton, William (Streatham)


Fowler, Norman (Sutton C'f'd)
MacCormick, Iain
Shepherd, Colin


Gardner, Edward (S Fylde)
McCrindle, Robert
Sims, Roger


Gilmour, Sir John (East Fife)
Macfarlane, Neil
Skeet, T. H. H.


Goodhew, Victor
MacGregor, John
Smith, Cyril (Rochdale)


Gow, Ian (Eastbourne)
McNair-Wilson, M. (Newbury)
Speed, Keith


Grant, Anthony (Harrow C)
Marshall, Michael (Arundel)
Spence, John


Gray, Hamish
Marten, Neil
Spicer, Michael (S Worcester)


Grimond, Pt Hon J.
Mather, Carol
Stainton, Keith


Grylls, Michael
Maxwell-Hyslop, Robin
Stanbrook, Ivor


Hall, Sir John
Mayhew, Patrick
Stewart, Donald (Western Isles)


Hall-Davis, A. G. F.
Miller, Hal (Bromsgrove)
Stewart, Ian (Hitchin)


Hamilton, Michael (Salisbury)
Miscampbell, Norman
Stradling Thomas, J.


Hampson, Dr Keith
Mitchell, David (Basingstoke)
Taylor, R. (Croydon NW)


Hannam, John
Moate, Roger
Taylor, Teddy (Cathcart)


Harrison, Col Sir Harwood (Eye)
More, Jasper (Ludlow)
Tebblt, Norman


Harvie Anderson, Rt Hon Miss
Morris, Michael (Northampton S)
Thompson, George


Havers, Sir Michael
Morrison, Hon Peter (Chester)
Thorpe, Rt Hon Jeremy (N Devon)


Hawkins, Paul
Nelson, Anthony
Townsend, Cyril D.


Hayhoe, Barney
Neubert, Michael
Tugendhat, Christopher


Henderson, Douglas
Newton, Tony
Wainwright, Richard (Colne V)


Holland, Philip
Nott, John
Warren, Kenneth


Hordern, Peter
Onslow, Cranley
Weatherill, Bernard


Howell, David (Guildford)
Osborn, John
Welsh, Andrew


Howell, Ralph (North Norfolk)
Page, John (Harrow West)
Wiggin, Jerry


Hunt, John
Page, Rt Hon R. Graham (Crosby)
Wigley, Dafydd


Irvine, Bryant Godman (Rye)
Pardoe, John
Wilson, Gordon (Dundee E)


Irving, Charles (Cheltenham)
Parkinson, Cecil
Winterton, Nicholas


Jopling, Michael
Percival, Ian
Younger, Hon George


Kaberry, Sir Donald
Prior, Rt Hon James



Kellett-Bowman, Mrs Elaine
Raison, Timothy
TELLERS FOR THE AYES:


Kershaw, Anthony
Rees, Peter (Dover &amp; Deal)
Mr. Spencer le Marchant and


Kilfedder, James
Renton, Rt Hon Sir D. (Hunts)
Mr. Anthony Berry.


King, Evelyn (South Dorset)
Ridley, Hon Nicholas





NOES


Archer, Peter
Doig, Peter
Jay, Rt Hon Douglas


Armstrong, Ernest
Douglas-Mann, Bruce
Johnson, Walter (Derby S)


Ashley, Jack
Dunn, James A.
Jones, Alec (Rhondda)


Ashton, Joe
Dunwoody, Mrs Gwynelh
Jones, Barry (East Flint)


Atkinson, Norman
Edge, Geoff
Jones, Dan (Burnley)


Barnett, Guy (Greenwich)
Edwards, Robert (Wolv SE)
Kaufman, Gerald


Barnett, Rt Hon Joel (Heywood)
Ellis, Tom (Wrexham)
Kelley, Richard


Bates, Alf
English, Michael
Kerr, Russell


Benn, Rt Hon Anthony Wedgwood
Ennals, David
Kilroy-Silk, Robert


Blenkinsop, Arthur
Evans, Fred (Caerphilly)
Kinnock, Neil


Boardman, H.
Evans, Ioan (Aberdare)
Lamborn, Harry


Booth, Albert
Evans, John (Newton)
Lamond, James


Boothroyd, Miss Betty
Ewing, Harry (Stirling)
Lee, John


Bradley, Tom
Faulds, Andrew
Lestor, Miss Joan (Eton &amp; Slough)


Bray, Dr Jeremy
Fletcher, Ted (Darlington)
Lewis, Ron (Carlisle)


Brown, Hugh D. (Provan)
Ford, Ben
Lipton, Marcus


Brown, Ronald (Hackney S)
George, Bruce
Loyden, Eddie


Callaghan, Jim (Middleton &amp; P)
Gilbert, Dr. John
Lyons, Edward (Bradford W)


Campbell, Ian
Ginsburg, David
Mackenzie, Gregor


Canavan, Dennis
Golding, John
Mackintosh, John P.


Carter, Ray
Gould, Bryan
McMillan, Tom (Glasgow C)


Carter-Jones, Lewis
Gourlay, Harry
McNamara, Kevin


Cartwright, John
Grant, George (Morpeth)
Madden, Max


Cocks, Michael (Bristol S)
Grocott, Bruce
Magee, Bryan


Conlan, Bernard
Hamilton, James (Bothwell)
Mahon, Simon


Cook, Robin F. (Edin C)
Hamilton, W. W. (Central Fife)
Marks, Kenneth


Corbett, Robin
Hardy, Peter
Maynard, Miss Joan


Craigen, J. M. (Maryhill)
Harper, Joseph
Meacher, Michael


Crawshaw, Richard
Harrison, Walter (Wakefield)
Mellish, Rt Hon Robert


Cronin, John
Hatton, Frank
Mendelson, John


Crosland, Rt Hon Anthony
Hayman, Mrs Helene
Millan, Bruce


Cryer, Bob
Heffer, Eric S.
Miller, Dr M. S. (E Kilbride)


Cunningham, G. (Islington S)
Horam, John
Miller, Mrs Millie (Ilford N)


Dalyell, Tam
Hoyle, Doug (Nelson)
Mitchell, R. C. (Solon, Itchen)


Davidson, Arthur
Huckfield, Les
Morris, Charles R. (Openshaw)


Davies, Denzil (Llanelli)
Hughes, Mark (Durham)
Newens, Stanley


Davies, Ifor (Gower)
Hughes, Roy (Newport)
Noble, Mike


Davis, Clinton (Hackney C)
Irving, Rt Hon S. (Dartford)
Oakes, Gordon


Dean, Joseph (Leeds West)
Jackson, Colin (Brighouse)
Ogden, Eric


de Freitas, Rt Hon Sir Geoffrey
Jackson, Miss Margaret (Lincoln)
O'Halloran, Michael


Dempsey, James
Janner, Greville
O'Malley, Rt Hon Brian







Orme, Rt Hon Stanley
Short, Mrs Renée (Wolv NE)
Ward, Michael


Ovenden, John
Sillars, James
Watkins, David


Park, George
Silverman, Julius
Weetch, Ken


Peart, Rt Hon Fred
Small, William
Wellbeloved, James


Prescott, John
Spearing, Nigel
White, Frank R. (Bury)


Radice, Giles
Spriggs, Leslie
White, James (Pollok)


Roberts, Albert (Normanton)
Stallard, A. W.
Whitlock, William


Roberts, Gwilym (Cannock)
Stewart, Rt Hon M. (Fulham)
Williams, W. T. (Warrington)


Robertson, John (Paisley)
Stoddart, David
Wilson, William (Coventry SE)


Roderick, Caerwyn
Stott, Roger
Wise, Mrs Audrey


Rodgers, George (Chorley)
Taylor, Mrs Ann (Bolton W)
Woodall, Alec


Rooker, J. W.
Thomas, Jeffrey (Abertillery)
Woof, Robert


Roper, John
Thorne, Stan (Preston South)
Young, David (Bolton E)


Rose, Paul B.
Tinn, James



Rowlands, Ted
Urwin, T. W.
TELLERS FOR THE NOES


Ryman, John
Wainwright, Edwin (Dearne V)
Mr. Donald Coleman and


Selby, Harry
Walker, Harold (Doncaster)
Mr. J. D. Dormand.


Sheldon, Robert (Ashton-u-Lyne)
Walker, Terry (Kingswood)

Question accordingly negatived.

[Mrs. LENA JEGER in the Chair.]

Mr. Pardoe: I beg to move Amendment No. 64, in page 17, line 32, after 'remainder', insert:—
'Provided always that if by 5th April 1976 the Official Retail Prices Index shall have risen by more than 5 per cent. since 6th April 1975 then the Treasury shall by order substitute for the said sums of £1,000 such higher sums as shall increase the said sums of £1,000 by a percentage equal to the percentage rise of the Official Retail Prices Index between the last date on which it was announced before 6th April 1975 and the last date it shall be announced before 5th April 1976.'.
In previous debates it has been pointed out that we have yet to have a disussion on an amendment proposing indexation of the tax system. However, we have gone over the ground already in previous debates and to a certain extent we went over it on Second Reading. Therefore, I do not wish to cover too much of the same ground, and I shall try not to do so.
We have heard from the Minister of State some of the Government's arguments against indexation. Before the end of this debate, I hope that the hon. Gentleman will get together one figure referring to one of his comments earlier today. He was speaking about the point made by the hon. Member for Blaby (Mr. Lawson) about the 9 million taxpayers whom the Chancellor claimed would be paying less taxes after the Budget than before. I should like to know how many of those 9 million taxpayers are now paying more taxes than before the Budget. Perhaps he will even take the calculation further and say how many of them pay more taxes every hour or every day. With the present rate of inflation—which is what this amendment is

about—more and more people are brought into the tax net every day.
I might say in answer to a point made by the hon. Member for St. Ives (Mr. Nott), who said that inflation had managed to fool the Chancellor of the Exchequer, that it fools nearly all Chancellors of the Exchequer. There is no doubt that it fooled his own Chancellor of the Exchequer, now Lord Barber. It enabled him and Conservative Central Office to claim that he had reduced tax rates by £3,000 million, which was technically correct but implied to the unsuspecting public that he had reduced taxes by £3,000 million—and we all know that that had not happened because of the effect of inflation on the buoyancy of the revenue.
Indexation has been variously defined, and I do not propose to go over the technical definitions. It is easier to define the problem that it seeks to solve.
Inflation does not affect everyone equally, and it does not affect every sector of the economy equally. Therefore, if we guarantee wages, salaries and pensions against the rise in prices but do not do the same for savings, it is likely at least that there will be a shift of resources out of savings and investment into income and inevitably, then, into expenditure. That is bound to damage our industrial potential and thereby lessen the growth of real incomes in the future.
Inflation also distorts the balance between lenders and borrowers unless both value their loans and interest in terms of constant purchasing power. So inflation can cause economic distortion and even social disruption by setting one group, which seems to have done well out of it, against another group, which seems to have done badly.
The search for a monetary unit of constant purchasing power to overcome some of these difficulties and others is not new. For many centuries the Tithes were fixed in constant purchasing power terms. Even in the last century the Commissioners of Tithes said how much money was required to purchase so much wheat, barley and oats as would have cost £100 at certain standard prices, and they had their own way of making these calculations.
In his Remedies for Fluctations in General Prices in 1887, Alfred Marshall proposed that this principle of the Commissioners of Tithes should be applied generally. This proposal by Alfred Marshall was a proposal for general indexing right across the board.
I agree with what the hon. Member for St. Ives said today. It was an almost total conversion from his speech on Second Reading, and we welcome that conversion. He seemed to be saying that it would be sensible to have a form of indexation right across the board if we were to have it at all. I think that that is right. Once we start on this process, as we have already on wages and pensions, in my view we have to go on. Therefore, I accept the general principle, as Alfred Marshall did and as Milton Friedman does today, that, in the inflationary situation in which we find ourselves, general indexation is one absolute sine qua non for fighting inflation.
I do not propose that the Government should impose indexation on every financial contract. Where the law does not allow financial contracts to be made in constant purchasing power terms, the Government should intervene to correct the law and make it possible. But in the Government's own financial relations with the citizenry there should be imposed on the Government, by statute, an obligation to index.
Milton Friedman has advocated a very similar course to the one which Arthur Marshall stated. In fact, he set it out in page 32 of his pamphlet for the Institute of Economic Affairs, "Monetary Correction":
Perhaps widespread escalator clauses are not the best expedient in this time of trouble. But I know of no other that has been suggested that holds out as much promise of

both reducing the harm done by inflation and facilitating the end of inflation. If inflation continues to accelerate, the conventional political wisdom will be reversed. The insistence on ending inflation at whatever cost will lead to a severe depression. Now, before that has occurred, is the time to take measures that will make it politically feasible to end inflation before inflation ends not only the conventional wisdom but perhaps also the free society.
That answers a point which the hon. Member for St. Ives made in his speech in our earlier debate, when he said that it did not take the pain out of inflation. It certainly does not take the pain out of inflation. I suggest—and I think Friedman in that passage is also suggesting—that it takes the pain out of fighting inflation. For those of us who recognise the extraordinary weakness of our democratic institutions for dealing with this central problem of our economy today, anything that takes the political pain out of fighting inflation is a useful weapon for us to have on board.
This amendment is not a general indexation amendment; it is specific to taxation. It attempts to meet the problem of the effect of rapid inflation on the tax system. That problem has already been stated in previous debates and I sketched some of its aspects on the second reading of the Finance Bill, when we tabled a reasoned amendment which, among other things, called on the Government to link all tax allowances to the retail price index.
I really do not think we can rub this in too much. Some of the consequences of not indexing the tax system have to be brought to the attention of the Government again and again, because we are constantly told by Government Ministers in these debates on indexation—and we had some on the last Finance Bill and no doubt will have some on the next—that there is no need for it because every time there is a Finance Bill they, in their discretion, naturally change the thing, and it is within the power of Parliament to do that. The fact of the matter is that the Government do not change the thing in line with inflation, and the whole tax system therefore gets out of key.
I quoted some figures in the Second Reading debate, but another way of looking at it is to ask what income a couple earning £30 a week in 1974–75 have to earn in order to maintain their purchasing


power in 1975–76, after tax. From the tables in the Red Book one can calculate that a couple with an income of £30 a week in 1974–75 paid tax of £88.11. Their net after-tax income in that year was £1,471, or £28 a week. With inflation at 20 per cent. they will need £1,766 net income, or £34 a week, to maintain their purchasing power in 1975–76. So a married couple with two children will need £1,972, or £37.92 a week, to obtain a net after-tax income of £1,766, or £34 a week, as a result of inflation. And the changes necessary to compensate for this were not made in the Budget.
There are many instances in which this is so. If one looks at slightly higher income groups one can see—I am indebted here to Samuel Brittan for some calculations in the Financial Times—a young couple with two children and a gross income of £1,500 in 1972, whose gross income has kept pace with inflation, which we will assume was 20 per cent. this year and thus will be 50 per cent. over the period, should therefore be earning this year not £1,500 but £2,250. In 1972, a couple with an income of £1,500 would have paid about 71 per cent. of their income in tax—that is, about £115. In 1975–76 they will pay nearly double, in percentage terms, slightly more than 13 per cent. of their income in tax, or about £300.
Of course, the Goverment can do these calculations. They know them only too well. And, as I pointed out—as did the hon. Member for St. Ives and other hon. Members—in the debate on Second Reading, the Child Poverty Action Group submitted a detailed memorandum to the Chancellor indicating the effects of his Budget and his failure to index the allowances and adjust them sufficiently to cope with inflation on low income earners. They are startling in the extreme and are contained in detail in that Child Poverty Action Group memorandum.
I think the time has come for all hon. Members on both sides of the Committee to realise that without indexation of the tax system this sort of effect on poor people particularly is almost inevitable. We must also realise that inflation is no friend of the poor and that those who cause inflation are no friends of the poor either.
The National Institute Review for November 1974 shows what has happened over the longer term.—[Interruption.]
The hon. Member for Blaby is drawing attention to the fact that although there is one hon. Member on the Government Front Bench, of backbenchers there is absolutely none; a sea of emptiness. Nevertheless, we plough on.
The National Institute Review for November 1974 had a whole series of extremely interesting articles covering the whole spectrum. They show what happened for the period 1961–62 to 1972–73. And basically that showed, in relation to personal income tax, that although discretionary budgetary changes compensated for the effect of inflation on the value of allowances over that longer term, they did no such thing for average tax rates, and—I quote from the comments in the review—
For the vast majority of taxpayers, discretionary changes only partially offset the price level increases.
So what other effects is the failure to index the taxation system likely to have? I suggest that it alters the balance within the tax system between taxes on income and taxes on consumption. I draw the Minister's attention to the fact that if one looks back over the long term, say, to 1956–57—one can do it from the Red Book of that year—one sees that Inland Revenue taxes made up 54·7 per cent. of total tax revenue. In 1975–76, Inland Revenue taxes make up 63·6 per cent. of total tax revenue. Governments of the day have been able to get away with this long-term change from taxes on consumption to taxes on income behind the disguise known as inflation. In the House of Commons they have never seriously debated what proportion of our total tax revenue should come from consumption tax and what from income tax. Certainly in the eight years that I have been in the House we have never had a debate on that fundamental issue. We have not had to, because Governments are able to change the balance through the working of inflation. That would have been obviated had indirect taxes been indexed, and I think that would have been a very helpful thing over the long term.

7.0 p.m.

Mr. Sheldon: Perhaps the hon. Gentleman did not take part in a number of debates that took place in 1966–67–68, when the question of the proportion of revenue raised from direct as opposed to indirect taxes was a matter of great political importance and was pushed hard, particularly by some of my hon. Friends in favour of revenue from indirect taxation. The balance was changed in a marked degree following some of those debates.

Mr. Pardoe: I certainly yield to the hon. Gentleman, but I think I am right in saying that although this subject may have cropped up from time to time in Finance Bill debates it has not been a matter of major political argument, probably because Governments have been able to get away with it by other means.
The second major factor is that inflation has its effects on the allocation of resources between the public and private sector. I was glad to hear the hon. Member for St. Ives coming round to a view which I stated during the Second Reading debate and from which I thought he dissented—although only with a move of his head—that inflation and the failure to index the tax system enables Chancellors to be more profligate than they otherwise would be with public resources and enables spending Ministers to get away with actions which they otherwise would not be allowed. This is the effect of the buoyancy of the revenue. There is nothing wrong with that, provided the buoyancy arises from real growth in incomes. When it is simply a growth in Government revenue coming from "phoney" and totally unreal increases in incomes, we have to take exception.
I come to the slogan which Friedman has coined and which seems an appropriate one for parliamentarians today, namely, "No taxation without indexation". The effect on public expenditure can be seen in this quotation from Friedman in another IEA publication when he says:
Experience by this time has demonstrated Parkinson's law beyond a shadow of a doubt: the legislators will spend whatever the tax system will raise plus a good deal more. And therefore the only effective way to impose fiscal discipline is to reduce tax revenues. Therefore I myself have been converted to the

policy of being in favour of tax reductions under any circumstances, for any excuse, for any reason, at any time.
Perhaps he goes further in that last sentence than some of us might wish to go. Nevertheless, it is true that the ability of the Chancellor to raise revenue irresspective of parliamentary control and independent of that control makes it much easier for Governments to spend public money.
There is no doubt that these increases in income taxation have a profound effect on the long-run rate of inflation. All sorts of studies in Canada, America and elsewhere have shown that raising income tax does have a marked effect on wage-push/cost-push inflation. I know, in the theory of the monetary equation, that if all things were perfect it would not, in the long run, have that effect. But we are dealing with a real world, and with Britain in 1975 it does have that effect.
Indexation of the tax system is important because the ending of inflation is politically difficult. It will help us to make it easier to tackle the problems of inflation and easier to control Government expenditure. There is no doubt that any policy we impose for ending inflation will be inconvenient and painful. We are simply out to lessen the evil and the pain.
I will not go into details of what index might be used, but clearly it might be better to use one that excluded the effect of indirect taxes, at any rate.
It seems that indexation of the tax system is one weapon that any Government faced with the present rates of inflation ought to have in their armoury.

Mr. Lawson: Before the hon. Member concludes his speech may I ask him to say whether he would exclude subsidies from this index?

Mr. Pardoe: Yes, inevitably so. We have seen how Chancellors can fiddle the retail price index. We need an index that cannot be fiddled. We have seen how the Chancellor fiddled the retail price index by a combination of subsidies and reductions in indirect taxation to a rate of 8·4 per cent. for three months just before the last election. We have to isolate an index from that sort of political gerrymandering.
In conclusion, the best I can do is to quote Friedman again. He said:
Indexing is not in and of itself a desirable thing. It is … a second-best device for a first-best world; but it is a first-best device for a second-best world. And the world is unfortunately second-best.

Mr. Sheldon: The hon. Member for Cornwall, North (Mr. Pardoe) began by referring to the fact that, perhaps unfortunately, we have debated part of this issue on a previous amendment. He is right to bring to our attention the need to have this subject focused in one amendment. I saw the main debate on indexation arising on this amendment. The hon. Member referred to the evils of inflation. No one will quarrel with himabout that. He seeks to mitigate those evils. His frequent quotations from Milton Friedman emphasise his views.
He points out that it would be necessary to have indexation across the board. I would accept such a thing, reluctantly, if inflation were to be large, continuous and inevitable. In such circumstances the scale of the problem would be such that some form of indexation covering most of the economic variables would be a necessary adjunct to an economy that had got out of hand in that way. The position at present, although serious, is obviously nowhere near that. So long as we still have not succumbed to these problems there are dangers, to which the hon. Member for St. Ives (Mr. Nott) referred, in anticipating such a situation.
Mention has been made of the sophistication on the one hand of some people in this country and on the other—perhaps to be fair I should say by other speakers—of the lack of sophistication by some members of the public. Any Government must take account of the fact that some of those problems are known and understood while some are not. There would be a danger of anticipation among some people if we were to move towards indexation of the kind to which the hon. Member for Cornwall, North refers.

Mr. Lawson: It might help the Committee if the hon. Gentleman could say what he means by the dangers of anticipation.

Mr. Sheldon: There would be a feeling among certain members of the community—the precise proportions neither he nor

I would wish to assess—that inflation was to continue at a high level. They would then start making wage demands, or whatever, on the basis of a continuing, large and inevitable inflation. One of the examples given by the hon. Member for St. Ives concerned wage bargaining. There are others.
The hon. Member for St. Ives said that when the Chancellor surveyed his annual revenue he was easily fooled by the belief that this was more buoyant than the situation justified, because in money terms the figures were larger. I was surprised that the hon. Member was so naive as to think that the Chancellor actually believed that money revenue terms produced the money available for a spending bonanza. That is not how these things work. I assumed that the hon. Member for Cornwall, North had dealt with these problems, but he will know—whether in "funny" money or whatever money he cares to consider—that these matters are the subject of close scrutiny, but errors can be made. However, they can be made both ways, up and down.
Admittedly it has not been easy this past year, but we can overestimate the level of inflation as well as underestimate it. Leaving errors of that kind aside, when we look at revenue we seek to relate expenditure in the same kind of money at the relevant times with that revenue which we intend to raise.
This amendment seeks to revalorise the investment income surcharge thresholds by means of a peculiar form of indexation. I am not sure whether the hon. Gentleman is wedded to this form of indexation or whether he devised the amendment just as a peg on which to hang a debate of a general kind on indexation. It places me in some difficulty because I do not know whether to go into this form of indexation or to leave it and deal with the point of substance that underlies it.

Mr. Pardoe: The Minister must understand that it is probably impossible to index completely without a written constitution or a Bill of Rights in which it is enshrined. We have to have entrenched clauses. This seemed to be the only way in which we could get this debated. Presumably the hon. Gentleman will answer this amendment.

Mr. Sheldon: Certainly I should not seek to quarrel with the hon. Gentleman. I have drafted, at considerable labour, amendments of a similar kind. However, I was seeking to ensure that I did not fail to answer a point that the hon. Gentleman might have wished to put, but which I now understand is not particularly important.
As regards the Government's concern about indexation, the Government are always aware of the erosion of allowances. I tried to make this clear in relation to an earlier amendment, but I am prepared to repeat myself. The Government fully understand, when they do not raise allowances, exactly what they are doing. In an earlier quotation I showed that the Chancellor had made available to the House his own view on the matter and his openness on this matter. The Chancellor acted conscientiously when he took this decision. Hon. Members who speak to this amendment and who believe in it see it as a means of forcing the Government to take some sort of action which they would not otherwise wish to take. By trying to impose a statutory obligation on the Government to raise allowances or to produce other forms of indexing, they hope to free the Government from the choice which is at present available. I find this the most surprising aspect. No Government, as anyone who understands these matters knows full well, will ever be placed in a situation like this. If a Government wish to increase, reduce or change allowances, they will do so, irrespective of the political colour of the Government, or what amendment is tabled. During the next Finance Bill, it would be changed in order to produce the flexibility which any Chancellor of the Exchequer, of any party, would demand as essential in conducting his economic policy.

7.15 p.m.

Mr. Tony Newton: I hope that the Minister will allow me to suggest that he is distorting the argument which was put by my hon. Friend the Member for St. Ives (Mr. Nott) and the hon. Member for Cornwall, North (Mr. Pardoe). They are not trying to reduce the Government's flexibility and I certainly would not. We accept the Government's power to make these judgments and to put them to Parliament.

We are objecting that these are at present stealthy judgments and not open judgments. The Government are, in effect, never forced to put to the public what they are doing. In the past year we have seen what the Minister is now defending as the alternative to an effective incomes policy. If that alternative were put to the public in that form, the Minister would get a somewhat different answer. We are saying that the Government should be forced to be open and honest with the public and not get their revenue by stealth.

Mr. Sheldon: I find this phrase "by stealth" surprising. The Chancellor spelt it out. Anyone familiar with inflation will be aware that if, unfortunately, this were to continue even at a much lower rate than it is at present, people would become increasingly aware of these problems. When the Chancellor goes so far as to spell out the consequence of what he is doing, it would be astonishing if even more people were to be unaware of precisely what is happening.
There are two aspects. One is the public relations aspect. This is the feeling that we have to make it clear what the Government are doing, and it is clearer if we have an indexing form. Many of my constituents and many people in this country would be more baffled by an indexing system, which they would find difficult to comprehend—at least for some time. This is one of the dangers. On the other hand, there is not only the public relations aspect but the aspect of trying to force the Government into areas into which no Government can be forced, and which I have described.

Mr. Lawson: I am sorry that the hon. Gentleman has such a poor view of his constituents. Is he not aware that precisely what we have been proposing is in operation in Canada and that there it operates entirely satisfactorily? Canada has an indexation tax system, and the Government are free to do as they feel fit. They have a formula, and the Canadians understand it. There are none of the problems that the hon. Gentleman has been suggesting at such great length.

Mr. Sheldon: The hon. Gentleman will be aware that in countries where inflation has not got completely out of hand the use of indexation is a rarity. There


are many other countries besides Canada, other than those countries where inflation has got out of hand. This is not a common practice. It is not sufficient for the hon. Gentleman to show that another country is using this system. He needs to prove his case in this country, in relation to our own taxation system. I do not believe he has succeeded in doing this.
I do not want to go into the details of the amendment, for the reasons I gave before. These debates on indexation are obviously valuable. The situation and the argument change all the time. I do not think that the case is anywhere near proved. It would be very dangerous if we were to proceed along this course, apart from those steps which have been mentioned and which have been taken by the Government in certain very limited and very selected areas. Because of this, I would advise my hon. Friends to reject the amendment if the hon. Gentleman were to press it to a Division.

Amendment negatived.

Mr. Newton: I beg to move Amendment No. 60 in, page 17, line 35, after "more", insert:
or in the case of a woman that her age was sixty years or more".

The Temporary Chairman: With this we may discuss Amendment No. 61, in page 17, line 35, after "more", insert: or that she is a widow".

Mr. Newton: I shall refer separately to Amendment No. 61, which refers to widows. As a courtesy to the Minister as well as to the rest of the Committee, I should perhaps note that it will be seen from the Order Paper that Amendment No. 60 has some unexpectedly heavyweight support which should have been attached to the immediately preceding Amendment in numerical order, namely Amendment No. 59, which we have not yet reached in our proceedings. I shall hope to persuade my right hon. and hon. Friends that I deserve their support for this amendment, but I should not want to give the Minister the impression that my army is larger and more powerful than it is.
These two amendments are the first two of a series concerned with women which we shall be moving in this Chamber and I hope, in Standing Committee.

At this stage, it is fair to say that we are probing the Minister and his colleagues for their approach in these matters. I doubt whether I shall wish to press either of these amendments to a Division this evening. It may be that because these are concerned with the interests of women, and primarily single women, some charge of discrimination or failure to act in terms of the Sex Discrimination Bill could be levelled at me. However, I am entirely in favour of all possible action to eliminate unjustified discrimination against women, but we still have to deal—not least in relation to taxation and national insurance—with the state of our society as it is and the fact that the problems and the situation of many women in our society have special aspects which are not necessarily the same as those of married couples and often those of single men.
As things stand it seems to me that we should look at these special problems and try to ensure that they are taken into account properly in our tax system. We do the cause of anti-discrimination, Women's Lib, or however it may be described, no service by overlooking these problems and pretending them away to the disadvantage of the very women we sometimes pretend to help.
Amendment No. 60 refers to the saving part of the clause which allows additional relief from the investment income surcharge to a taxpayer where
his age or that of his wife living with him was sixty-five years or more.
Of course, it will be readily appreciated by the Committee, and certainly by the Minister, that what this means, since in this case "his" covers "hers", is that single women who normally retire at the age of 60 and are certainly entitled under the national insurance scheme to retire at 60, do not get the benefit of this additional relief from the investment income surcharge for five years after their retirement. In other words, for these purposes they are treated like a man or like married couples.
I raised this self-same subject in debate on the previous Finance Bill, now the Act, which seems all too recent. It was fairly recent—barely two months ago. At that time I tabled two amendments, to which the same Minister replied. On rereading what was said then, I see that on


Report the Minister very carefully confined his rebutting remarks to one of my amendments only, which concerned the situation when a wife became 60. I was suggesting then that married couples ought to have the benefit of the additional help of the relief from the investment income surcharge. The Minister put forward some arguments which at least made me consider that to be possible. That was on an amendment which to all intents and purposes was identical to Amendment No. 60, which we are now discussing.
The Minister carefully and, I assume, with consideration, refrained from referring to that amendment. Therefore, I want to press him today on the specific point of women who are entitled to retire at the age of 60 but who are unable to benefit under the Bill and the present situation relating to investment income surcharge for a further five years by the same relief specifically intended as relief for retired people. That is wholly unjustifiable. The Government should reconsider this matter.
This question has been raised with the Chancellor of the Exchequer, as the Minister will know, in a wider context by Age Concern, in a forceful letter which will have given the Government considerable cause for thought. That showed, probably for the first time in British history, that there are many women between the ages of 60 and 65 who are in practice paying tax on their national insurance pension.
This case has been made very forcefully by Age Concern. It will arise more properly in Standing Committee when we discuss Clause 29. I have no doubt that my hon. Friends will wish to return to it in the wider context at that stage. However, the logic and justification for dealing with the new old-age allowance and extending it to women between the ages of 60 and 65 would apply equally on this narrower point of the extra relief from investment income surcharge.
I have no hesitation in pressing this point on the Minister this evening. It is relatively limited in that it refers only to investment income, but it would at least help. It would help those taxpayers who have investment incomes and who are at present not given this additional relief because they happen to be women who

have retired but have not reached the age of 65. In any case, I have moved the amendment to probe the Minister's thinking on this general point, as this may help us to decide how best to press him later in our proceedings in Committee.
I now turn to Amendment No. 61, which is on a related, but broad, point to the extent that it deals with the selfsame extra relief from the investment income surcharge for all widows. That would not, in practice, be as sweeping as it sounds, because clearly widows over the age of 65 already benefit from the proposals in the Bill, and, equally, widows between 60 and 65 would benefit from my earlier amendment. Therefore, we are now talking, for the sake of argument, about younger widows.
We shall be returning to the question of widows on a number of occasions. However, I want to make it generally clear at this stage that my amendment refers only to widows more as a matter of convenience and because it is primarily a probing amendment, and that there are equal problems affecting many divorced women, which I would not want to overlook or have it thought that I was overlooking.
Again, this is a relatively narrow point about widows. We shall be returning to wider matters later, if we get that far in our consideration of amendments relating to Clause 28. Meanwhile, there is no doubt that many widows, as hon. Members must know, are feeling an increasingly acute sense of grievance about the way they are treated by the tax system, which has failed to deal with their problems. We shall return to that matter. However, there is strong justification for extending this concession on investment income to all widows. It cannot conceivably be at all expensive. By definition there must be quite a large number of widows whose income is primarily investment income, because they will be living on the proceeds of the life insurance of their husbands, which they will have invested and which will be producing their income—which was no doubt the intention of their husbands.
Given that this is what it has been provided for and that this is a proper and widely urged way for husbands to proceed in providing for their spouses, it seems very reasonable to suggest that


when the widowhood has occurred and the widow is forced to depend on this income from insurance taken out by her husband, the State should extend some kind of special concession to that income.
There is a very strong case—perhaps even stronger than that on some other amendments—for looking at this suggestion for extending the further relief from investment income surcharge to widows. As I have indicated, I hope for a favourable response not only from my right hon. and hon. Friends but from the Minister, because more and more people have become worried about this subject which is causing a greater and greater sense of grievance. For a relatively modest cost, the Minister could spread a great deal of additional happiness at a time when it is much needed.

7.30 p.m.

Mr. Sheldon: The hon. Member for Braintree (Mr. Newton) is moving the amendment drew attention in particular to the situation of elderly people, especially widows.
I deal first with Amendment No. 60. The purpose of this amendment is to reduce the qualifying age for the reduced investment income surcharge of £1,500 to the age of 60 for women instead of the age 65.
I understand that the hon. Gentleman is trying to probe one or two matters with this amendment, but he will know that the objection is that it would discriminate against single men and married couples by introducing different qualifying ages for the reduced surcharge threshold. The effect would be that the woman would be eligible for the reduced investment income surcharge at the age of 60, but a single man or a married couple would not be so eligible until the age of 65. Moreover, I understand that the lower age limit generally does discriminate against men. Previous Governments—and this has been going on for a long time—have retained the same qualifying age for the investment income surcharge as well as for certain other reliefs.
We have had a debate on the investment income surcharge and the need to tax income from investment more heavily than income from the current work, mainly because the savings income has a different character from other incomes. But on retirement savings or investment

income has a different aspect and needs to be treated differently.
The proposal to have a lower qualifying age for women, whether for the purposes of giving relief from the investment income surcharge or for other tax relief purposes, is open to the discrimination to which I have referred. One can point to an analogy between the different ages of retirement of men and women and the different ages required to qualify for reductions in the investment income surcharge. It is true that women have the advantage, when it comes to retirement pensions, of being able to qualify at the age of 60 whereas men have to wait until they are 65. However, there is no reason—and succeeding Governments have failed to be convinced—why they should be more favourably treated for the purpose of the investment income surcharge. For men to have to wait five years longer for their pension, plus the investment income surcharge at the reduced rate, would be straining their acceptance too far. A number of men are forced to retire through ill health, through redundancy and for other reasons earlier than the age of 65 and would consequently not be eligible, and are not at present eligible, for the investment income surcharge. If such men were to compare themselves with perfectly fit women in similar situations, who qualify not only for the retirement pension at an earlier age but also for these benefits, it would, at a time of greater sex equality, be extremely difficult for them to accept such a position. Successive Governments have taken that view.
The hon. Member for Braintree asked me a question about Age Concern. I am sorry, but I have been unable to give him a reply at present. I understand that the matter will arise again when we discuss Clause 29 and I shall be happy to give him a full reply then or, if he so requires, I shall be delighted to write to him in the interim period.

Mr. Newton: I was not expecting a reply. The Age Concern paper relates to Clause 29 but it has some relevance to this discussion.

Mr. Sheldon: I am grateful to the hon. Gentleman. I understood that the matter arose under Clause 29. I am glad to note his patience and his willingness to wait until that time.
I turn to Amendment 61 which gives the higher investment income surcharge threshold of £1,500 applicable to elderly people. This is unchanged from 1974–75. This amendment would give the higher investment income surcharge also to all widows. The ground has been fully covered in successive debates in January and March on what is now Section 5 of the Finance Act 1975.
The amendment fixes the threshold. The purpose is to continue the principle that investment income has a taxable capacity greater than that of earned income. The widows' benefits will be taxable as earned income. National insurance widows, as we know, generally receive widows' pensions and allowances unless they happen to be widowed young and have no dependent children. The maintenance payment of the first £1,000 does not rank as investment income. That concerns divorced and separated persons who are living under conditions of great hardship which we all understand.
There will be a number of subsequent debates. We all know that tax relief is not the best way to handle these matters. We deal with them in Finance Bill debates, and those debates take up a great deal of parliamentary time. They arise frequently—nowadays more frequently than they used to—and thus an increasing number of opportunities are provided to raise these matters.
Tax relief helps only those who pay tax. It helps most those who pay the most tax and does not help at all those who pay no tax. The help for investment income is help for those with investment incomes greater than £1,000. The dangers of having a range of preferential starting points for the investment income surcharge is that we complicate income tax. We try to discriminate, we try to create a superstructure of detailed concessions trying to identify individuals in a way in which the income tax system cannot do.
In the age of the Welfare State, where we have one of the largest Departments in the Government concerned with making these identifications possible by trying to find ways of helping those rare specialised individual cases, it would be absurd to duplicate the whole of the work in the area of taxation. I should like to deal with widows. We have the widows'

allowance, the widows' supplementary allowance, the widows' pension, the widows' basic pension and the widowed mothers' allowance. Nobody can say that that is the end of the line. Anyone who comes to the House 10 years hence or even longer will find allowances even more discriminating than those we have at present. That surely is the way to proceed. What we can do through taxation about this matter is much coarser and has a much rougher effect. It cannot delineate the millions of problems that arise. The only way in which we can find greater concentration on individual problems so that assistance is given in a much more individual way than is possible through the tax system is through the present social security system. Any moneys that we try to spend in this way—that is, by not raising taxation—would be much better spent in the discriminating manner to which I have referred.
The greatest problem that the House will have to face is that debates of this kind are unlikely to increase in line with demand for expenditure on the social services. If we are not careful we shall end by having virtually two social security systems side by side, one operated by the Department of Health and Social Security and the other a much more feeble and more unwieldy substitute, through the income tax system. Income tax has a rôle to play in some of these broader applications, but it cannot deal with the detail in the way that the social security system can.
I understand that the hon. Gentleman moved the amendment as a probing amendment. I hope that his probe has resulted in his finding at any rate something of interest and possibly of use to him, and that we can move to the further amendments.

Mr. David Howell: I should like to continue the probing of my hon. Friend the Member for Braintree (Mr. Newton) in one or two respects. First, the thesis about the virtues of selective assistance through the social security system, as opposed to the tax system, is in one way a good argument for a tax credit system. It is certainly not an argument for the present mad merry-go-round of arrangements. It might have been valid when tax levels were generally much lower, but when we reach a stage when, as we


shall find in later clauses, the national insurance pension drawn by a widowed man or woman is, if there is a graduated element in it, at a level that attracts tax, we are at the beginning of fiscal insanity. We are at a point at which we have turned the merry-go-round into a crazy spiral of administration of a tax imposition.
With inflation, the levels of that imposition are biting harder and harder every moment, and it begins of its own accord to create social problems which must be alleviated with more selective measures through social security, which in turn must be financed by further taxation, which in turn creates further social security problems. This is the road to lunacy. I am sorry to hear that the Minister is tramping so cheerfully, determinedly and confidently along that road—sorry, but not surprised.
On the concessions suggested by my hon. Friend, I add one further question. The Minister made play with the concept of the principle that there must not be too large a deviation from the idea that the surcharge relief should apply only to those over the age of 65. On that basis, he rules out women between 60 and 64 and everyone else. However, the hon. Gentleman reminded us of one area where the principle is already broken—that of divorced or separated people, where the first £1,000 of maintenance income is disregarded and then the first £1,000 of investment income on top of that is allowed as though it were the first £1,000 of unearned income. If that applies to divorced and separated people, who are often in difficult circumstances trying to bring up a family with only one parent, how much more does it apply to widows?
Perhaps I can yet persuade the Minister to tell us what it would have cost to extend the concession, or a similar concession to that applying to divorced people through maintenance income, to widows. What would be the cost, for example, of disregarding the first £2,000 of investment income for widows? That is what it would mean in effect.
I do not press the matter, because we are all the time constrained by the revenue, although the sums we are talking about are spent every morning by the Secretary of State for Industry and again every afternoon by the Chancellor of the Exchequer financing exorbitant wage

increases in the public sector. Even though we try to keep that from our minds at present, we should bear in mind that the sums with which we are here concerned are a minute irrelevance compared with the profligacy and extravagance of those Ministers who are supposed to be controlling public finances on the expenditure side and are not doing so. If the Minister does not have figures for that sum in his brief, it would be useful to have them when we discuss similar problems on other clauses, so that we may judge our priorities.

[Mr. ARTHUR JONES in the Chair]

7.45 p.m.

Mr. Newton: I hasten to assure the Minister that I shall seek leave to withdraw the amendment, but I should like to say a few words first.
I accept part of what the Minister said about the difficulty of operating through both the tax system and the social security system, and I fully endorse what my hon. Friend the Member for Guildford (Mr. Howell) said about the desirability of moving to a tax credit system. One of the great missed opportunities of the past two years was that the progress being made towards a system which would produce sensible harmony between our social security system and our tax system was thrown away.
Whilst I accept some of what the Minister says about the difficulties of the situation in which his Government have, alas, left us, I hope that he will also bear in mind that one thing the tax system can do is to help create a greater sense of justice among people who are increasingly feeling a sense of injustice. Widows in general are feeling a sense of injustice about the way in which they are treated by the tax system. More generally, those who have taken the trouble to save in their earning lifetimes, and to build up the capital from which an investment income comes, forgoing things that other people have not forgone, are beginning to feel a burning sense of injustice about the way in which they are treated by the tax system.
I am becoming alarmed by the number of people in my constituency who tell me "I saved, and I can now do certain things for myself, but the State will not give me free teeth or certain other things.


It will give them only to those who did not save, who did not bother to look ahead to their own future." More and more people are drawing the conclusion that there is no point in saving. That is not what the Minister desires, and it is certainly not what we on this side of the Committee desire. But it is happening. It is in a way an enlargement of the debate that the Minister and I have been having on this relatively narrow point tonight.
I leave that question to say something about the women aged between 60 and 64. I do not accept what I take to have been a standard Treasury brief, which must have been trotted out year in and year out for almost as long as anyone can remember.
We hear of the need for the system to treat everyone equally at the age of 65, and the idea that single men would see what is proposed as a grotesque discrimination against their interests. If that discrimination exists and men object to it, or have a right to object to it, it must arise in relation to the basic national insurance system, which allows women to retire at 60 with benefits which are clearly not actuarially justified in relation to men. If there is an injustice, it is the differential retiring age. The Minister or his right hon. Friend the Secretary of State for Social Services may want to look at that, but there is no suggestion that they will change it, either by raising the retiring age of women or by reducing men's retiring age.
Once we get away from that we are confronted with the situation that we have in the provision relating to the investment income surcharge a concession which can conceivably be justified not in relation to the age 65, dragged out of thin air, but only in relation to the age at which people retire. Up to that point, the Government do not much care for investment income. They want it to be more highly taxed, but then, because it is the normal male retirement age, the Government are prepared to give a little extra concession. Investment income then becomes rather more acceptable to them. Having urged people to save all their lives, they at least accept that when people retire they can have some use of the money that they have saved.
This is related to the age of retirement. The justification is that people's income has dropped because they have ceased to earn, and that they should now be allowed to enjoy a bit more of the benefit of the money they have saved for their retirement. As I think that that is the justification for the concession, I can see no shred of logic for denying it to women who retire at 60, the age at which they cease to earn and at which they demand our care and attention to help them live on the money they have saved while they were at work.
Let us bear in mind that basically we are talking about single women who have been dependent on their own earnings. They have been responsible for their national insurance contributions and their own savings. At the stage we are discussing they pass out of the system. It seems clear that we should extend to them the benefits of this concession.
I do not follow the Minister's reasoning. As I have said, I shall not press the amendment further at this stage as we shall be returning to this subject later in our debates. I, for one, am profoundly dissatisfied with the Minister's reply, and especially about Amendment No. 60. I shall not let the matter rest later in our proceedings. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Graham Page: I beg to move Amendment No. 34, in page 17, line 37, at end add
'and except that income tax shall not be charged on any sum received by way of pension or allowance payable under any Order in Council, Royal Warrant, order or scheme in respect of death due to service in the armed forces of the Crown or the Merchant Navy or due to war injuries and notwithstanding the provisions of section 528 of the Taxes Act 1970, for the purposes of section 7 of that Act, in calculating total income any sum received by way of such pension or allowance as aforesaid shall be disregarded'.
In the previous debate we were discussing widows, and my hon. Friend the Member for Braintree (Mr. Newton) said that his amendment was a probing amendment. My amendment is far from that. I hope that it will be accepted by the Government as a reasonable amendment, its purpose being to exempt war widows' pensions from income tax. They are the only British war pensions which suffer


tax. The war widows' pension, other than that of the widows of those killed in Northern Ireland by reason of a recent alteration in the law, is not at reasonable subsistence level. That has been recognised by the exception of the widows of those who have died in the Northern Ireland conflict. They are awarded a reasonable pension of approximately £34 per week, but the war widows of the First and Second World Wars still have a low pension and still suffer tax on it.
The war widows' pension should be free of tax. That is the object of the amendment. We should do away with the ridiculous position that if a person loses a limb as a result of war service his pension is tax-free but if he loses his life the pension to his dependants is taxed.
I always hesitate to quote my own speeches, but to save time I shall refer to an example I gave in the House on 9th May 1974. I said:
A British girl who married an American soldier or even a German soldier who dies on active service can live in this country and receive a pension of something over £30 a week from America or Germany, and she is not liable for one penny of tax upon it either there or here. That is because America, like Australia, Canada, New Zealand, South Africa, Rhodesia, France, Belgium and Greece, does not tax war widows' pensions. That is because Germany, like Russia. Japan, Israel, Austria, Hungary, Pakistan, Singapore and Zambia, does not impose tax on war widows' pensions. Nor do Malawi, Malaya or Malta; nor do Bermuda, the Bahamas or even the Isle of Man."—[Official Report, 9th May 1974; Vol. 873, c. 679.]
The Isle of Man is within our own area but it recognises that war widows' pensions should be free of tax. But we continue to tax them.
I have a constituent, a Mrs. Gee, who is probably known by name to many right hon. and hon. Members who have received correspondence from her. She is the Chairman of the War Widows' Association of Great Britain. Last summer Mrs. Gee took temporary work in Germany to do some on-the-spot research work into the way that German war widows were faring. She gave me two examples.
The first example is of a German war widow of World War II. She is very proud of the way in which her country has treated her. Her daughter received an excellent State education. This widow

is now aged 58. She lost her husband, who was a corporal, at the age of 24, when she had one small daughter. It had never been necessary for her to work, by reason of the pension that she received from her State. It was 10 years ago that she decided to buy her own house, through the special arrangements for war widows, by commuting part of her pension to help with the deposit and the repayments—incidentally, the repayments were made at the rate of 2 per cent. At present her pension is approximately £135 per month free of tax. That is the way in which Germany is treating the widows of those killed in World War II.
Mrs. Gee gave me another example—that of a widow of a man who had been killed in World War I. The widow is now aged 75. She lives in a delightful one-bedroomed centrally-heated apartment for which she pays £15 a month. The State pays the balance of the rent and heating. When Mrs. Gee visited this widow she saw that she was giving her daughter a gift of £120. My constituent asked her whether she had any source of income other than her war pension. She replied that she had never had any other income since her husband was killed in 1916.
When I compare that treatment with that which we hand out to our pensioners I become more than a little ashamed—ashamed when I read those examples of how Germany deals with the widows of those who died in the First and Second World Wars. My amendment, which seeks to exempt war widows' pensions from income tax, would not open any floodgates to others demanding that their payments from the State, whether they be by way of pension or otherwise, should be free of tax. The war widows' pension is the only British war pension to be taxed.
Of course, successive Governments have allowed the taxing of the pension to continue for a considerable time. But it becomes cheaper to the Government each year to remedy this wrong. The Northern Ireland widows have been taken out of this category altogether by the substantial increase in the pension awarded to them. The number of those who are now left as war widows of the First and Second World Wars could be comfortably seated in Wembley Stadium. The amount


which the Government would have to allow, if they accepted the amendment, would be a very small sum compared to the prestige that it would give this country, bearing in mind all the other countries which allow their war widows' pensions to be free of tax.

8.0 p.m.

Mr. John Page: There was one previous occasion when the right hon. Member for Crosby (Mr. Page) made a speech on a Finance Bill, which I am happy to say formed the basis of a leading article in the Financial Times. Because we share a common name, the right hon. Gentleman's article was attributed to me. On the day following the publication of that article I was invited to lunch by a leading firm of stockbrokers and many of my friends looked upon me with new eyes as somebody possessing a great deal of expertise.
We are dealing in this debate with a more serious matter, and I wish to be associated with my right hon. Friend's remarks. In the last 24 hours a widow of a Royal Artillery gunner in my regiment got in touch with me bceause she had become aware that this debate was to take place and nut before me her own plight. There is little that I need add to what my right hon. Friend has already said, because the case is crystal clear. Labour Governments always like to advertise themselves as being Governments of the compassionate—as people who look after those who are less able to look after themselves. I hone that on this occasion the Government will respond by acceping this amendment—which is not an open-ended commitment but one which the Committee should accept, even at this late stage as a tribute to those who have given their lives for our country and who have left their widows in our care.

Mr. Roger Sims: I hope that the Government on this occasion will allow the Committee to implement a recommendation of a Select Committee of this House. In 1919 a Select Committee recommended that widows' pensions should be exempt from tax. Therefore, I warmly support the amendment moved by my right hon. Friend the Member for Crosby (Mr. Page). My right hon. Friend illustrated graphically and movingly our curious treatment of war

widows—by what was described in the letter sent out by His Majesty on the occasion of their bereavement as "a grateful country".
My right hon. Friend said that the number of women who would benefit was decreasing, so that this is a limited commitment. This is a special case; we are dealing here with women widowed very young in life, whose husbands had not had the opportunity to build up the amount of life insurance enjoyed by other widows.
There are ample precedents involving principle. My right hon. Friend mentioned the disability pension. Such a pension is not taxed, yet we tax those who suffer the anguish of being bereaved, and who are without a loved companion for life. There are precedents for this practice overseas. We all know of countries in which war widows' pensions are not taxed. This is the case not only in western countries but in countries such as Malawi or Pakistan, whose economic circumstances are very different from ours.
A further practical problem suffered by widows is that they find that invariably when their pension is increased the increase is promptly taxed. An increase in income often means that they lose rent and rate rebates, and consequently they are worse off because of that increase.
This is not a new issue, and these are not new arguments, but the arguments are no less valid because of that factor. Therefore, I urge the Government, on behalf of a grateful country, to do belated justice to this limited group.

Sir John Hall: I support the amend-men so eloquently moved by my right hon. Friend the Member for Crosby (Mr. Page). He said that he happened to have in his constituency the chairman of a war widows' association. I have in my constituency the secretary of such an organisation, and she is untiring in her efforts to bring before me examples of hardship which face war widows. She has also given me examples of the treatment of these widows by other nations which allow their incomes to be free of tax.
I was particularly struck by the fact that the United Kingdom, alone among the great Powers which took part in the last war, does not allow war widows' pensions to go tax free. Many other countries have seen fit to recognise the


sacrifices made by men in the last war and the effect which this has had on widows and families. Therefore, I believe that even at this late stage we should be prepared to recognise that fact and to grant exemption from tax to those pensioners. It is by its very nature a diminishing financial liability. It cannot be very expensive, and the amount involved must decrease year by year. Therefore, at this late stage I beg the Minister to treat this matter with much more sympathy than he has treated similar proposals made from the Opposition benches. I hope that he will do all he can to help this less fortunate section of society. I hope that he will find it possible to ignore his brief, which no doubt says "Resist", and accept by right hon. Friend's amendment.

Mr. Sheldon: As for any "brief", I would inform the hon. Member for Wycombe (Sir J. Hall) that I have only some handwritten notes to help me to reply to this debate. I find this a most difficult problem—one of the most difficult of all the matters which come before Parliament on these occasions. I begin by referring to the remarks made by the right hon. Member for Crosby (Mr. Page). He spoke about the treatment of war widows in Germany and said that he felt ashamed of the way in which we have treated these women. Obviously, he struck a chord of response in the Comittee, and no doubt there are many areas in which assistance needs to be given. This is what the present Government felt last year, and it is why we have brought about a large increase of a kind I shall describe later in my remarks.
The right hon. Gentleman gave a list of countries which exempt war widows' pensions from tax. On all these matters it is difficult to make comparisons because the system of taxation in so many of these countries differs so widely. We have only to think of Russia and Japan to know what a problem it is to relate what one country gives in the way of remission of taxation to what another country gives in the way of benefit. It is a fact that of the nine Community countries, four countries tax war widows' pensions. I am not saying that that is something in its favour, but I put that argument forward as a means of expressing the problem which exists in relating tax systems one to another, even in countries which have

a good deal in common with each other—namely, the Community countries.
The hon. Member for Chislehurst (Mr. Sims) was right to point out the long-term nature of the pressure to exempt war widows from income tax—a process started after the First World War. The interesting thing is not how long these pensions have been liable to tax but how long the pressure to exempt them from tax has continued.
At present war widows' pensions are treated as earned income, but previous Ministers on all sides of the political spectrum have never felt justified in freeing them from tax. The case for income tax exemptions has often been raised in long debates on Finance Bills. One of the more recent occasions was the 1973 Finance Bill when the then Financial Secretary, the hon. Member for Worthing (Mr. Higgins), replied to the debate. The main burden of his argument on that occasion related to the anomalies and repercussions that would arise if the provision were accepted. Those anomalies and repercussions have not diminished with time. I suppose, if anything, that they tend to increase as the social security system becomes more complex.
The right hon. Member for Crosby sought to move a new clause in the 1974 Finance Bill dealing with this subject. That new clause was not called. We must examine the Government record and seek the best way in which to deal with the problem of war widows. This is one of the most emotive cases with which we have to deal.
Until July 1974 the widows' pension stood at £10·10p per week or £525·20p per annum, which was raised to £630 and subsequently to £780 from April 1975. Therefore the pension was increased by about 50 per cent. within one year, which was a considerable increase. That shows the great strength of feeling aroused about these matters. The direct result of the substantial increase in these pensions must be compared with the problems which are involved in freeing from tax the benefits paid by the social security system. That method would produce great problems.

Mr. Ivan Lawrence: Will the Minister say what would be the cost to the Exchequer if my right hon. Friend's amendment were adopted?

Mr. Sheldon: It is not easy to estimate those costs. It is difficult to identify people with other sources of income. I accept that the number of such people would not be large. I am sorry that I am unable to give the figure.
We must look at the general principle concerning all allowances by comparing what help can be given. What are we trying to do? We are trying to help, not through the method but through the giving of assistance. To the widow what is important is how much cash she receives as a measure of the community's concern rather than the manner in which help is given. If the administration finds that the disadvantages of one method are exceptional, the Committee must accept the available evidence as to the ways more readily open to the administration to offset those disadvantages by providing some additonal advantage through the social security system.
If we freed the benefits from tax, that would become a form of allowance. We would end up by giving most to those who have most. Once an income tax allowance is given, those paying substantial amounts of income tax benefit the most. Those paying small amounts of income tax benefit less, while those paying no income tax benefit the least. That is not a good system of directing resources and assistance to the people most in need.

8.15 p.m.

Mr. John Page: The estates of soldiers who are killed in action are free of death duties. This means that the widows of those who had large estates are left with those estates. There is no reason to change that. Cannot the same principle apply to these pensions?

Mr. Sheldon: There is a difference. We are talking about the Government paying out benefits to war widows. The Government make payments to them. I do not think that we can compare these two different matters as the hon. Gentleman sought to do.
We are trying to give aid to all widows. As regards the tax system and the social security system, we are trying to give aid to those who require it most. We seek to do that by the way in which we operate the social security system. The increases are an all-time record, even in

real terms. That is what we intend to do and have intended to do. I hope therefore that the Committee will acquit us of not wishing to give the maximum assistance to these people.

Mr. David Howell: The handwritten notes of the Minister of State did not serve him well. Perhaps he would have done better to use a Treasury brief.
Having listened to my right hon. and hon. Friends, and especially the right hon. Member for Crosby (Mr. Page), who moved the amendment, I feel that we should be humbled by the relative position of the United Kingdom vis-à-vis the treatment of war widows by the rest of the world. The catalogue was familiar. It gave a sour twist to the statement made so often in the United Kingdom that we won the war and lost the peace.
I am sorry that the Minister of State could not give us even a vague idea of how much a change in the system would cost. It is about time that calculations were made to establish a rough estimate of the cost. I see the difficulties involved in collecting the precise details. The calculation depends upon the income levels of those affected. However, it would be of value if an approximate figure could be obtained. I am sorry that the Minister could not provide one.
My hon. Friend the Member for Harrow, West (Mr. Page) said with confidence that death duties were not applied to the estates of soldiers killed in action. I warn him to be cautious. When the Government brought in the new capital transfer tax proposals to replace the former estate duty system they had every intention of ending that provision in 1984. It was only because of an Opposition amendment in Committee, which was successfully pressed, that the Government backed down. We can have no confidence that even those concessions are safe from the claw of the Socialist tax gatherers. They have their beady eyes even on those concessions.
It will not surprise the Committee that we have received from the handwritten notes of the Minister of State a thoroughly negative answer. It lacked the appropriate realisation that, in the world context, we were in a very bad position vis-à-vis the treatment of war


widows. My right hon. Friend produced a catalogue of nearly all the countries in the world.
These are times of stringency. This is not the time when we on this side of the Committee can press the kind of amendments that we believe to be of the highest priority. However, when things get better—perhaps the very condition of their getting better will be when we are on different sides of the Committee—the case made out by my right hon. Friend the Member for Crosby will have a very high priority. We can do better than shuffle out handwritten notes and say that we will help through social security or in some other way at some other time.

Mr. Graham Page: In moving the amendment I should perhaps have delared a past interest. My father was killed at Saint Julien in 1917. My mother was left a widow with three small children to bring up. My recollection is that the pension of the widow of a colonel in those days was £300 a year. That was all that my mother had, together with a very small investment income, with tax on the whole, to bring up three young children.
Therefore, I am apt to feel a little bitter about the way the country has treated war widows over the years from the First World War. I have no doubt that the Minister feels very much the same as I do by the way he answered the debate and said that it was indeed a very difficult problem.
The Minister of State disappointed the Committee when he trotted out old arguments. They do not hold water. It is true that some of the States that I mentioned have different systems of taxation, but the system of taxation is not so different in Germany and America. If a British girl is the widow of an American or German soldier, she will receive tax-free in this country about the figure which the Government have recognised that the widow of a soldier who has died in the Northern Ireland conflict should receive. Yet, although war widows from the two main wars receive, I admit, an increased pension, they still suffer tax on it.
The Minister of State said that there would be many repercussions and anomalies and that problems exist. What problems? What problems have been raised by the tax-free disability pension? No

problems at all. One might have thought that there could have been greater problems when giving freedom from tax for the man who has lost a limb. There will be no problems when allowing a tax-free war widow's pension.
It was significant that the Minister said that the cost would not be large. To that extent I think that my hon. Friend the Member for Guildford (Mr. Howell) was kind in saying that we ought to see this proposal accepted when things get better. The small amount involved in this amendment should be allowed at the earliest moment.
The Minister treated this proposal as a matter of social security. It is not just a question of giving a subsistence benefit to a war widow. It is a matter of treating the war widow fairly, with justice, and with gratitude for the way in which her husband served. It is not a question whether the war widow is destitute. The country is providing her with a subsistence allowance. Many war widows supplement their pensions by working. As a result, they have to pay tax on the basis of the pension plus what they earn from their work. Many have a small investment income which, even at a young age, their husbands had been able to save. Thus they pay tax based on their total income.
I think that in justice the time has come to show compassion towards war widows. Having regard to what my hon. Friend the Member for Guildford said, I do not intend to press the amendment to a Division. The points have been made more forcefully by my hon. Friends than could ever be shown by pressing the amendment to a Division. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Newton: I beg to move Amendment No. 58, in page 17, line 37, at end insert:
'and except that in the case of an individual who shows that in the year of assessment his total income does not exceed £1,200 and in the case of a married couple that, in the year of assessment their income does not exceed £1,500 there shall be an entitlement to a deduction of one-half of the amount of income tax otherwise chargeable,'.
The purpose of the amendment is to reintroduce the system of reduced rates—that is, rates below the standard rate—


of income tax for those with relatively small incomes.
I am sure that the Minister of State will readily appreciate the basic reasoning behind the proposal. It is the concern of hon. Members on this side of the Committee, and no doubt on the Government side were they more in evidence, about the so-called poverty surtax or wages trap—it has been described by a variety of names—which has grown up over the past few years essentially because of the overlap between the social security and tax systems with the result that people earning very little are paying what amount to tax rates at the highest surtax levels and in certain extraordinary cases effective tax rates of over 100 per cent.
Therefore, at certain levels of income, people pay not only the normal standard rate of income tax—now 35 per cent.—plus national insurance contributions, but lose perhaps rent rebates, school milk and meals subsidies and a whole variety of social security benefits which are income-related and which, from their point of view at any one point in time, have the same effect as an increased payment of income tax. The net result is that the deduction from their pay may be such that it is not worth their earning an extra pound.
This is a subject on which many hon. Members have spent a great deal of time and I will not attempt to elaborate the problem further. Clearly the reintroduction of a reduced rate of income tax below the standard rate would not eliminate the problem. Equally, it would help the problem. Given that we seem to be as far as ever away from tackling the problem on a larger scale, namely, by the introduction of a tax credit system, and given that we are geting further away from a system which can tackle the problem in a more organised way, the reintroduction of a reduced rate is one method which might help.
The reduced rate disappeared almost by accident in the Budget introduced by the right hon. Member for Birmingham, Stechford (Mr. Jenkins) during the period of the previous Labour Government, when the reduced rates of income tax were withdrawn as part of a device for juggling the income tax system to give

additional relief at the bottom end of the scale while clawing it back from the so-called middle classes. The device used for doing that was to increase personal allowances and to remove the reduced tax rates. It was not suggested that reduced rates were a bad idea, but in the political, economic and financial circumstances of the time that seemed to be a convenient way for the right hon. Gentleman to operate. Since that time the British tax system has been without the reduced rate band.
The amendment would reintroduce a reduced tax rate for a single person earning between £700 and £1,200 a year and for a married couple without children earning between £1,000 and £1,500 a year. Those are relatively small sums at current inflated income rates. Between those levels, instead of jumping straight into the standard rate of income tax of 35 per cent. a person would pay only half that rate.
That provision would reduce the tax burden significantly. It would relieve the problem of the so-called poverty trap that is acknowledged by both sides of the Committee to be among the more serious difficulties of British social and fiscal policy and, in simpler terms, it would help to remove the serious disincentive effect which applies to a large number of less-well-off people. For people in the band of earnings around this level, there is little point in bothering to earn more because the chances are that they will lose most of it to the State.
8.30 p.m.
It is common ground between both sides of the Committee that that cannot in the long run be a satisfactory state of affairs. It is probably also common ground that a starting point for tax of 35 per cent. is too high and that suddenly to jump from paying no tax at all on a marginal pound to losing over one-third of a marginal pound of earnings is not an ideal fiscal arrangement.
The amendment is a probing amendment, but I hope that the Minister will look reasonably sympathetically at least in the time ahead at the possibility of reintroducing a form of reduced rate of income tax if not exactly along the lines of the amendment, then on similar lines


that would help to ease a problem that is recognised by both sides of the Committee.

Mr. Nott: My hon. Friend the Member for Braintree (Mr. Newton) moved the amendment clearly and concisely. I rise to emphasise that we are conscious of some of the defects in the drafting of the amendment. I am grateful to the Minister of State for telling me how much it was likely to cost. I understand that because of certain defects in the drafting the cost could go into astronomical figures.
The intention of the amendment, which my hon. Friend and I drafted between us, is to restore the reduced rate band which the right hon. Member for Birmingham, Stechford (Mr. Jenkins) removed in his 1969 Budget. We are seeking a way to case the lower income groups into the tax net so that the benefit does not necessarily go right the way up to the highest tax levels. I do not know how that can be done, but there may be means of doing it which are known to the Government and unknown to me. The Chief Secretary and I discussed the matter a short time ago. The answer may lie in the method adopted for applying the age exemption allowance, which runs out above a certain income level.
We are seeking to ensure that when a person comes out of the non-tax-paying bracket into tax for the first time he should move by stages rather than by jumping immediately into a 35 per cent. rate of tax. In the Second Reading debate I pointed out that if a typical wage earner who is just below the tax threshold comes into tax as the result of a wage increase he will pay at the rate of 35 per cent. on every pound of additional income he earns. Of course, this means that, taking what I admit is an extreme example, a person needs to receive an increase of one and a half times the current rate of inflation in order to retain his current standard of living where the increased charge takes him just over the tax threshold.
This extreme example arises only where someone is paying an extra 35 per cent. on every pound of additional income, and as the income levels increase the position becomes less extreme. It is only at the higher income levels that this

huge jump in marginal rate arises, and it is where the marginal rate differs at its greatest from the average rate that the problem arises in its starkest form.
The Child Poverty Action Group is a worthy body. All Ministers receive its circulars, and it is correct when, in its recent statement headed "More Poor Families Paying Tax", it says:
Although the Chancellor made much ado about taking 400,000 workers out of tax, the blunt fact is that there are over one million more low paid workers paying tax as a result of this Budget than there were before Mr. Healey introduced his first Budget in April 1974".
In other words, as a result of inflation about 1½ million low-paid workers have been drawn into the income tax net since last year. That situation will be corrected only by raising the threshold even higher than at present.
The amendment seeks to help people who are just above the threshold or who are just coming over it, rather than those who are below it. I am sure that the Minister is aware of its basic intentions. As my hon. Friend the Member for Braintree said, it is fundamentally a probing amendment. I do not think that my hon. Friend wishes to press it to a Division. Certainly we shall not do that if, as I suspect, it would, through faulty drafting, cost the Government £1,000 million. That is not our intention.
The extent of the increase of direct taxation is shown by two of the recent Red Books. In the last Red Book published by the outgoing Conservative Government the estimate of the income tax yield for 1973–74 was given as £7,233 million. As far as I recall, the out-turn was not greatly different from the estimate. This year, after the Budget changes, only two years later, the Government's estimate of the yield of income tax is £14,008 million. So in two years, in money terms, the yield of income tax has risen from £7,000 million to £14,000 million. That is a most staggering figure. Not only has the yield doubled in money terms but it has risen by £7,000 million in two years. I am not suggesting that the major proportion of this increase has been borne by those who are around the tax threshold—who are below the figure of £1,500 for a married couple—but there can be no doubt that the tax band between, say,


£1,000 and £1,500 for a married couple provides considerable revenue.
We are conscious of the defects of the amendment. I know that the Minister of State, who was kind enough to help me when I inquired of his office about the revenue implications, will not make a point of that. Nevertheless, we are on an important point. Have the Government given any thought to the way in which they can help to overcome this problem? I have heard the Minister make four speeches in the last week in which he has repeatedly said that it is is the Government's policy to ensure that those with the broadest backs should pay the major part of the additional revenue that the Chancellor requires. But the increase in the taxation of this low-paid section has been far greater, in terms of disposable incomes than the increase for those further up the scale.

Mr. Sheldon: The hon. Member for St. Ives (Mr. Nott) dealt with certain broad tax matters with which perhaps I might deal first. I have previously shown how the income tax paid by those on average earnings has changed from before the war, when no contribution was expected or obtained from manual workers, to today, when over 18 per cent. of their income goes in tax. I outlined one of the problems that our present income tax structure has created.
The problem of the reduced rate band was the strongest reason for the Chief Secretary and I producing a minority report to the Select Committee Report on tax credits. There are a number of advantages in a tax credits system which would have separated out the benefits from taxation, but had we gone ahead with the system which had been proposed to us, not only would the benefits not have been good enough, but it would have set the system into a rigid framework which would have debarred us from ever introducing in practice a reduced rate band.
The hon. Member talks of finding a way of easing the tax burden of the lower paid without going all the way up and in doing so he poses the problem which beset that Select Committee and has beset anyone who has considered these problems. This is the philosopher's stone.

How can we help those at the lower end without helping also those who earn incomes in excess of that?

8.45 p.m.

Mr. Nott: I understand what the Minister is saying, and he will probably go on to say a lot more, but the principal advantage of the tax credit scheme did not lie in this area. It lay primarily in the fact that with such benefits as FIS, where there is a 50 per cent. marginal rate—and I have read every word that was said in the Committee on tax credits—

Mr. Sheldon: Surely not.

Mr. Nott: I certainly did. I was an equally conscientious Minister of State as is the hon. Gentleman. We do not want a debate about the tax credit scheme now—although I would welcome one soon, because the Government were very foolish to throw it overboard—but its principal advantage was that it would have reduced the marginal rate from 50 per cent. on many social benefits down to the basic rate of tax, and if the hon. Gentleman is saying that he opposed some of the votes on the tax credit scheme for the reason that it prohibited a reduced rate band, and now he cannot find one, this is a very regrettable argument. I hope to hear more from him on this aspect.

Mr. Sheldon: If I may be allowed to intervene, perhaps I shall be able to get my ideas across. FIS involved only a relatively small number of people producing problems of their particular kind, but this was not the main task. We did not examine the tax credit system because of the problems of FIS. This was one element alone, and the hon. Gentleman will appreciaae that. But this big problem of how to help those at the lower end, without giving that same assistance to those at the higher, arose whenever this question was examined.
This happens in a number of cases, and one can try to arrange some sort of claw-back, either by trying to accelerate the tax proportion payable by those people at a certain level, or by trying to get it back in this other way. What one cannot do is just give the benefit to all those below some arbitrary figure and say that that benefit will not be available to anybody else, because clearly there one faces marginal relief problems of an


insuperable kind—that it will pay people not to work, and pay people to do all sorts of foolish things.
Under the old age exemption relief there was a marginal tax rate of 55 per cent. in an attempt to get from this lower rate to the standard rate. This was fiercely resented, and the hon. Gentleman will know that this was why the age allowance was introduced.
This problem arises all the time. I do not want to quote figures at the hon. Member—because I understand that this is just a probing amendment, designed to air this particularly important matter, in which I have very great personal interest—but whenever I look at the problems of a reduced rate band, the difficulty is one of cost because of the way in which these things operate. If one were to have a reduced rate band in order to bring people into tax at an initial rate lower than 30 per cent. or 35 per cent., or whatever it may be at a particular time, it would have to be at a more modest level than this. At a rate of 17½ per cent. the cost would be about £2,000 million, because of the marginal relief problems and the way in which these would have to be carried all the way through. There is always the problem of cost. The reason is that over the years the threshold has been going down in a way which I described in an earlier debate when I showed the contribution made by people on average earnings.
Sooner or later we shall have to deal with this problem either through the reduced rate band or in some other way. It remains a problem, and this debate has helped the Committee focus its attention on the problem and on possible solutions to it.

Mr. Newton: Having unexpectedly moved the amendment, I find myself almost equally unexpectedly about to ask leave to withdraw it. Having been slightly rude to the Minister of State in one debate, I have to thank him on behalf of the Committee for the thoughtful way in which he replied to the discussion on this amendment.
I know from my past work that it is very difficult to see how to deal with this problem. The hon. Gentleman has made a helpful contribution, and in that sense it will be almost a pleasure to ask leave to withdraw the amendment—certainly

more so than it might have been in other circumstances.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 ordered to stand part of the Bill.

Clause 25

CORPORATION TAX: OTHER RATES AND FRACTIONS

Mr. David Mitchell: I beg to move Amendment No. 44, in page 18, line 22, leave out 42 'and insert 40'.

The Temporary Chairman: With this, we are to discuss Amendment No. 45, in page 18, line 22, leave out 42 'and insert 39'.

Mr. Mitchell: If it is any help to the Government—I am always anxious to help them—the reason why both amendments appear on the Notice Paper is to enable them to choose the lesser amendment if they feel that the cost of the other is too much. Amendment No. 45 proposes a reduction in the rate of corporation tax for small businesses from 42 per cent. to 39 per cent. If that is felt to be inappropriate, Amendment No. 44 proposes that the rate be reduced to 40 per cent., which is the figure at which it stood a year ago.
I am glad that the Chief Secretary is to reply to the debate, because he used to be a friend of small businesses. I recall some unholy, or perhaps holy, alliances across party lines in 1972 on the subject of the problems of small businesses. Before coming into the Chamber today I turned up one of those debates. On that occasion, the Chief Secretary said to the Committee,
I find myself in the very strange and unusual position of having willingly to support the hon. Members for South Angus (Mr. Bruce-Gardyne) and Basingstoke (Mr. David Mitchell). I should not be quite as fierce with the Government as they are. The hon. Member for Basingstoke said some fearful things about his own Front Bench. I am staggered. I should not have dreamt of using such strong language …".—[Official Report, Standing Committee E, 22nd June 1972; c. 1410.]
The Committee may be assured that I shall be forthright. I hope that the alliance which we built up in that period in our understanding of the problems of small businesses has stood the pasage of


time well enough to secure the support of the Chief Secretary for these very moderate and modest amendments.
At the time of the General Election, we had promises from the Government to do something about the problems facing small businesses. Since then, we have had undertakings in Government White Papers. But action is a very different matter.
I wish to be fair to the Government. To be fair, last year the Government accepted that the definition of a small business entitled to small business relief from corporation tax should be widened. That certainly helped some businesses, and it was a very good thing. Indeed, had it not been done it would no doubt have added to the numbers of those in financial difficulties at the present time. But tonight the Minister has the opportunity of accepting an amendment to help not a small group of small businesses but all the small businesses which are liable to corporation tax.
I want to remind the Committee why it is that a small business is different, for I am one of those—in this I am sure I would have the agreement of the Minister—who do not believe that small businesses should be subsidised. They should just be left with more of their own money in their own pockets to make their own investment decisions, instead of the Government bleeding so much away. I want to consider why small businesses are different and then the conflict between the national interest and the practical needs and the ideology of the Left wing of the Labour Party, against which I hope the Minister will stand this evening.
Small businesses are different for a variety of reasons, one of which is that they do not have so many employees or so much income on which to carry the increasing overheads which Governments provide. Small businesses today are caught in a web of Government controls and regulations. One has only to think of price controls, profit regulations, census returns, consumer protection, hire-purchase regulations, labour regulations, trade descriptions, wages councils, PAYE—I could go on and on. The difficulty is that it does go on. Where there is a small business with only one person, or perhaps two, to cope with all this, it is a very substantial overhead for that

business. One could go on. There are the Factories Acts, wages councils, training boards, contracts of employment. VAT, multiple VAT, and so on.
The point I am trying to get at—I hope that the Government will accept this—is that here one is dealing with something which bears particularly heavily on small organisations.
[Mr. GEORGE THOMAS in the Chair]
The second and perhaps bigger reason for the difference of small businesses is that they are financed from ploughed-back profits. I am sure the Chief Secretary will approve if I say that profits are not money which is taken out of the business by the proprietor. Profits are not what enable the proprietor to go off to South Wales, in your case, Mr. Chairman, or to the South of France, or elsewhere, to regale himself. That is not what profits are. Profits are the money which is generated by the business with which to modernise it, to be ploughed back into it, to be used for research, development, keeping one's product ahead, equipping the factory, providing the reserves to ensure that in times of financial difficulty—there are many firms in that position today—it can weather through without going into liquidation. Those are the sorts of things for which profits are used.
Very often the Left wing, like Pavlov's dog, rises at the word "profits" and assumes it to be something which is wholly undesirable. The truth is that profits are the absolutely essential source of finance for the continuation of all businesses, and for small businesses there is not the opportunity of going elsewhere.
9.0 p.m.
We live in a time of inflation, when businesses require more money to do the same volume of trade. Those who are not engaged in commercial activity may not appreciate the full extent of the process. If a business which has £50,000 worth of work in progress and owes money to its customers is operating with inflation at its present rate of 20 per cent. or 25 per cent.—I shall not argue about the rate—wishes in 12 months' time to do the same volume of business, it will require another £10,000.
The crucial question is: where does it get the money from? At the same time


as the business is asking for more money the Chancellor is saying that more money must be taken out in corporation tax. It is this conflict between the needs of the business and the demands of the Chancellor, leeching away the life-blood of the business—its working capital—in increased taxation which is the problem. The large company can go to the Stock Exchange. Quite a number have done so lately, and have raised more capital from their shareholders. The small business is not quoted on the Stock Exchange. It cannot go there.
Where can the small business go? To its bankers? No. Its bankers will say that they will lend if the business is creditworthy. But to a bank "creditworthy" means that there must be an ability to repay in cash in about three years' time. It is no use the company saying, "We are creditworthy and your loan will be used for the most modern printing press in the world. You can have a piece of the money back in three years' time." The bank is not interested.
The company cannot go to the bank for long-term capital for investment purposes. We come back to the need of the business to generate sufficient profits and, having generated them, to be able to retain them in the business. The Chief Secretary has commented on the relative merits of the classical system and the system we now have, with corporation tax. I know that he favours the classical system. He is not in a position—or does not intend—to make a change from the imputation system back to the classical system. That being so it behoves him, on the strength of the arguments he used so persuasively in Committee—when in opposition—against the imputation system, to do something to help small businesses. I hope that he will seize that opportunity tonight.
I noticed in my local paper recently that a store in Winchester was closing. It is a well-known, long-established family business. I thought it was worth trying to find out why it was closing. This is what I discovered: I quote from a letter from Edmonds of Winchester, which says
An entirely new situation has developed since details of the capital transfer tax have been promulgated. In its proposed form the tax is deliberately designed to ensure that a business such as this cannot pass to the next generation. Thus, I feel it has become

pointless to plan the re-expansion of a firm which is doomed to disappear upon my retirement. I have, therefore, decided to cease trading shortly and to seek a new challenge elsewhere in the world while I am young enough to supply the energy and initiative needed. Other factors have, of course, contributed to the decision. Inflation has seriously affected my ability to equip, stock and staff an enlarged range of departments after meeting greatly increased costs of rebuilding.
In a microcosm, this is the problem facing many small businesses. They are not able to generate, after paying tax, sufficient money to expand, to reinvest and re-equip to go into the future.
In this case the man concerned is going to New Zealand to start a new life. With the constant increasing pressure on small businesses I cannot say that I am wholly surprised at his doing so, although I have written to him saying how much I regret that he has chosen to do that rather than stay and fight in this country to create the sort of environment in which small businesses can thrive. However, that being the case, I cite it as an example of an ever-increasing number of people who are saying that it is just not worth while to have a small business today.
The added load of the extra corporation tax which the amendment seeks to reduce is one area in which the Government can help. I sympathise with the Minister in the problems he has with his own Left wing. There is a difference, a difficulty and a conflict with the ideology of the Left, which seeks to base itself upon envy and upon pulling down anyone who has successfully built up a business. However, we do not help the wage earner by destroying the wage payer, and we certainly do not help this country to get more investment by depriving businesses of the money that they generate and need to plough back into those businesses.
Of all the analyses that have been made the one that unites all parties is that we need to have more investment. The generation of funds in a business is the source of that investment—a source which the Government are cutting back and taking away by excessive taxation. It is small wonder that we have become the sick man of Europe. The prime weakness and sickness is that we are not investing enough money behind each man at work in this country to enable him to earn for his firm sufficient to pay him a decent wage and to have enough left over to


invest in the modernisation of equipment of that company. That is why we are the poorest country but one in Europe. One does not need to be a prophet to say that in two years we shall be the poorest country in Europe. We need more investment. Here the Government are depriving industry of the funds it needs.

Mr. Crawford: Is the hon. Gentleman saying that the United Kingdom will become the poorest country in Europe or does he mean that England will become the poorest country in Europe?

Mr. Mitchell: I am referring to the United Kingdom, which I hope will remain united. Of this much I am quite certain: if there is a regional argument in this amendment, it is the argument that time and again when the small business or the family business in Scotland, Wales or Northern Ireland finds itself in financial difficulties it is taken over by a London-based, English-based, or possibly internationally-based company. Before very long, when that company has to cut back, it does so at the periphery and in the regions. There is a concentration into the English factories at the expense of the regional areas. There is, therefore, a genuine regional argument that we ought not to see the squeeze on small businesses to the extent that we see it at present.
Finally, Parliament is entitled to ask for information as to the cost of this amendment. Last Monday I tabled a Question in order to ascertain the cost of the amendment. I am delighted to see the Minister responsible for small firms, the Under-Secretary of State for Industry, sitting next to the Financial Secretary. When I tabled my Question the Government did not know what it would cost to reduce corporation tax on small firms from 42 per cent. to 40 per cent. or to 39 per cent. I received the reply last Friday from the Minister of State, Treasury:
I will let the hon. Member have the reply as soon as possible."—[Official Report, 16th May 1975; Vol. 892, c. 190.]
It had not been possible by then to answer my Question. This is an indication of the Government's failure to have assessed and to have at the Minister's finger tips the cost of the sort of change

which ought to be made and which, with respect, the Minister responsible for small businesses should have been pressing on the Government at every available opportunity.
Some of my hon. Friends may ask whether there is a conflict between this amendment and the general Opposition stance that there should be no reductions in taxation, that we have a very difficult financial situation in which we cannot treat ourselves generously, that there are hard times ahead, and that we must tighten our belts. Is there a conflict between that stance and an amendment which seeks to reduce corporation tax on small businesses? I believe that this is not a conflict, for it is a question of priorities. If this country is to get itself out of the financial, business and commercial difficulties it faces, it must do so on the basis of increasing investment in industry and enabling industry to modernise itself. Only on that basis can we earn the high standard of living that we want. It must, therefore, be a priority to reduce the reduction of available capital for investment which is now being carried out by the present Government.

Mr. Ryman: If the hon. Gentleman is seeking to argue that he is not advocating a general reduction in taxation and adheres to the policy of his party in wanting the present rate of taxation to be imposed as per the Chancellor's statement, and if at the same time he is advocating that small firms should benefit from a reduction in corporation tax, may I ask him where the additional money is coming from to make up the difference between his suggested reduction in corporation tax and his acknowledged recognition of the fact that the level of general taxation must be increased? Who is to pay the difference?

Mr. Mitchell: I was about to resume my seat. However, I would say that if the hon. Gentleman had been following the Opposition's case on this matter he would have realised that we were opposed to the concept of introducing a two-tier value added tax, with rates of 8 per cent. and 25 per cent. He would know that had VAT been retained at its standard 10 per cent. rate for all goods, ample funds would have been raised to pay for what is involved in this amendment and a great many others, too. There is a much larger


off-take into the Treasury from a 10 per cent. rate of VAT than from 8 per cent. on some things and 25 per cent. on others. The point is that in the end it must come from reduction in consumption in our economy and increases in investment. The amendment is an opportunity for the Government to move towards that.

Mr. John MacGregor: I am delighted to support my hon. Friend the Member for Basingstoke (Mr. Mitchell) in the amendment. Since I became a Member of Parliament some 15 months ago, we have had a number of debates on small businesses. But certainly from my experience recently it is right to say that never has it been more relevant to have a debate of this sort, and never has the situation facing many small businesses been more serious.
In the last fortnight alone I have had drawn to my attention—not just in my part of the country but in the United Kingdom generally—several cases, including one of a small business which is almost certain to go into liquidation, with the loss of over 50 jobs, another which is very likely to go into liquidation unless something can be done about it within the next few days, with a further loss of 25 jobs, and a third involving a loss of 40 jobs. Furthermore, I have heard rumours of a great many more examples.
My worry is that in a situation of deepening recession such as this, and with the increased squeeze on small businesses, to which I shall refer shortly, our worst fears, which we have been predicting for some time, could come about very swiftly indeed. It does not become a question of merely one or two businesses going out of business. The snowball gathers force tremendously quickly. I fear that unless something is done we shall face that situation over the next few weeks and months.
My only criticism of the amendment is that I do not believe that the support will be enough. We are talking about easing the cash flow position of companies which are making a profit. Nevertheless, it will greatly help to case the position of some and give us an opportunity to draw attention to the plight of others.
9.15 p.m.
It is interesting to note that the position in all the companies to which I have referred, and the others about which I have heard rumours, is the same. First, there is the general downturn in the economy. Secondly, they are being squeezed at both ends. They are being squeezed by their suppliers, who are often major companies. It is often the smaller business which is least important in a situation like this, from the point of view of a supplier facing difficulties. They are also being squeezed by their customers who are delaying payments to them—and that is one of the principal factors.
As my hon. Friend correctly pointed out, if these companies are being squeezed both in the case of financing stocks and through having to meet high interest payments because of the delay in payments from their own customers, the effect on the cash flow at a time of high inflation becomes greater than it would at other times.
The enormous rises in their costs over the past year as soon as the economy started to downturn is a factor which has equally a very dramatic effect. The rise in taxes is perhaps less of an element than the rise in rates. The very big rate burden that many of these small businesses will have to face this year may be what pushes them from profit to loss.
I put forward recently a private Member's Bill—Local Government (Rate Relief for Small Businesses)—which I think will do more to help some of these businesses than the amendments we are discussing tonight.
There are also the increasing fuel bills. I believe that the Chancellor is right to take action to remove, during the coming year, the deficits of the nationalised industries. However, we must recognise that for certain small businesses this has a dramatic effect that is much ore important than on others. I quote one example of a business which five years ago was converted to natural gas. The fuel bill is an important element in the process in which it is involved. This year, because of the change in the tariff of natural gas, its fuel bill is estimated to rise from £40,000 to £80,000. For a small business that unpredicted increase of £40,000 in


one year can have a very dramatic effect on cash flow.
Finally, small businesses have few places to which to turn in this critical situation. Their bank managers are worried about the general economic situation and are being cautious because they believe that the net worth and the valuation of the underlying securities of such businesses, on which they have their existing loans, have diminished, and they are therefore writing them down. They are not prepared to increase advances or to give overdrafts to tide them over this difficult period as they would have done in good times. Indeed, they do not know how long the difficult period will last. Small businesses are in a critical situation.
Bigger companies, particularly the largest companies, can survive because in some cases they can rely on Government help and in others they have the resources to see them through these difficult times. The fear of unemployment on a much larger scale in the larger companies makes it easier for them to get assistance, whether from Government or from private resources, to tide them over.
However, if a small business, of the sort I have been talking about, employing 25 to 50 people, goes into liquidation in a rural area, the effect on that community will be more significant than the liquidation of a bigger business will be in a major conurbation.
I do not wish to speak at length on this amendment. I felt it right, in view of my experience over the past two weeks, to draw attention to this serious problem. I ask the Minister responsible for small firms, whom I am delighted to see present, to urge the Government to set up machinery to monitor the situation of the small firms, to be prepared to get the Council for Small Industries in Rural Areas and other bodies of that sort to look with sympathy at the plight of these small businesses and perhaps to be prepared to say to the Customs and Excise and the Inland Revenue that over VAT and PAYE they should be prepared to look sensitively and with sympathy on the plight of these businesses as it affects their payments.
The matter is a question of confidence as well as these practical details, a question of future cash flow expectations. I

believe that this small amendment would help small businesses' confidence and expectations of future cash flow.
Therefore, a gesture of support from the Government for the amendment would go a considerable way at least to giving the small businesses the feeling that the Government were sympathetic to them in their plight and were prepared to help.

Mr. Andrew Welsh: For small businesses this is definitely the age of low profits, inflation, high costs, overheads and the burden of the self-employed levy imposed by both Tory and Labour Governments. Adding in the other taxes, we see that there is now small return for the work that small business men are putting in. Many face the possibility of going out of business. By their package of tax measures, the Government seem to be making it pay people not to be in business for themselves.
Part of the unnecessary burden placed on small businesses consists of a mound of paper work for the Government, whether juggling with any of the nine different VAT systems, plus amendments, which have made small business men more or less unpaid tax collectors, or with some of the many statutory returns that they must fill in. They are now in trouble, and any relief will be of benefit to them.
I have in mind especially the plight of small businesses in rural communities—businesses which are of crucial importance to the local economy as employers or sources of income and services to the population. Any help to this important sector of the Scottish economy is to be commended.
Therefore, I recommend my hon. Friends to vote for the amendment. I hope that the Government will take a good, hard look at the plight of small businesses.

Mr. John Cope: This is in many ways a modest amendment, and I shall make a speech to match. But it is important, not so much in itself as for what it stands for and the way in which, Mr. Thomas, you have allowed the debate to touch on various matters not directly concerned with the small business rate.

The Chairman: I wish that the hon. Gentleman had not brought everyone's attention to that fact. I have been busily engaged in trying to pretend that I had not noticed. Now that I have noticed, the hon. Gentleman will no doubt confine himself to the 42 per cent. or 40 per cent. rate.

Mr. Cope: I shall do my best, Mr. Thomas, but the small business rate is in any case one of the substantial ways in which the tax system takes note of the special position of small business. That is why the amendment and the relevant sections of the Corporation Tax Acts are so important to small businesses.
The Government feel very hurt sometimes when they are accused of being against small businesses, but they do nothing to justify being let off that charge. Many sections of the nation seem to be telling the House, basically about the economic situation in general and other matters to which I cannot refer, "We cannot go on as we are". The small business sector is saying that to the House and the Government in a more acute way.
Attention has already been drawn to the advantages of small businesses which gave rise to the present corporation tax rate in the first place, and which give rise to the amendment—this attempt to improve the rate. Small businesses are in some ways the yeast in the free enterprise system. They make it work and flourish, because they are responsive to their customers and give good service. They also have excellent industrial relations.
It seems that no large company can operate without the small companies with which it does business and which surround it, any more than a super-tanker or a liner can put to sea without tugs and tenders to help it. Yet these companies labour under a net of problems. The Government have probably developed the technique that was developed by the gladiators in Roman times, who were attacked with a net and a trident. Having surrounded small businesses with the sort of net which my hon. Friends have been talking about, the Government attacked with the trident of direct and indirect taxes and rates. Indeed, the Government have added a few extra prongs since Roman times. I

suppose that is some form of progress. The amendment seeks to blunt, to some extent, the direct tax prong to improve the position of the small companies.
If the Government cannot accept the amendment let them suggest something else for the small businesses. The Government bail our larger businesses for the reasons which have been suggested. They almost boast of the fact that they subsidise this company and that, and this commodity and that, but small businesses get only Government interference and more and more problems. I ask the Government to accept the amendment. Let us try to be polite—probably the Government are not so used to that as they are to other techniques. If the Government cannot accept the amendment, let them show us a chink of light for small businesses for the future.
For many small businesses the situation is very serious. We are talking about businesses which in total employ one third of the people of this country. A third of the working population is employed by the public sector and the other third is employed by the large companies. We are talking about a lot of people and a lot of employment. It is for those people, both as employees and as employers, that we seek to press the amendment. If the Government cannot accept it, let us see a little of what else they might do to bring some help to this important section of our community.

Mr. Costain: This is a small amendment which seeks a small concession for small businesses. It may be that 2 per cent. does not mean much to the Chancellor but it means a tremendous amount to others in areas such as my constituency. I speak as president of my local chamber of trade. I have never before had such desperate appeals made to me by the small business man, and particularly by the shopkeeper who employs one or two people. They are telling me that they feel that they are becoming tax collectors. They say that when they make a profit it is taken away in taxation.
My hon. Friend the Member for Gloucestershire, South (Mr. Cope) has suggested that we be polite to the Government. I would crawl across the Chamber if I thought I could get some concession for these desperate and needy people.
9.30 p.m.
It is not only the small businesses that are affected but community life. It is the small shopkeeper who sets up in business in the corner shop in the suburbs of our towns who supplies the elderly who do not want to go to the main shopping centres. However, he cannot carry on if he is to be taxed out of existence. Even from the point of saving fuel, it is important that the small shopkeeper is encouraged.
If the small shops are forced to shut, the elderly will have to alter their shopping habits when buying small articles. We know that such people cannot get on a bus and carry large quantities of material back to their homes. Therefore, they go to the small shops and buy the small items there.
I wish to make a special appeal on behalf of the small shopkeeper. It may be said, "What is 2 per cent? It comes out of profit anyway". But if those small businesses go bankrupt because the Government have done nothing to help them, they will pay no tax whatever and that will be a loss to the Inland Revenue.
Surely we should allow these poor, miserable people to make a small and honest profit. I cannot understand why a Labour Government are so hell bent on hitting the small man. I am sure that this would not happen if those small shopkeepers and businesses had behind them a large trade union. All we are asking in the amendment is for the figure to be varied from 42 per cent. to 40 per cent. When we bear in mind the present inflation rate of 20 per cent., we must appreciate that working capital in a small business is completely tied up. However, I shall not go into that matter in detail because it has been adequately dealt with.
I hope that the right hon. Gentleman, the Chief Secretary to the Treasury, with his experience as an accountant, is well aware of the problems of small firms. He must know the cost situation which faces them, and he will appreciate that a small concession, such as we suggest in the amendment, will help to keep their premises open so that they can give a social service to the community.

Mr. Joel Barnett: The hon. Member for Basingstoke (Mr. Mitchell) will be interested to know that I recall the "unholy alliance" and the occasion when

we joined forces in an attack on the then Conservative Government to try to persuade them to help small businesses, although I must point out that in those days the definition of "small companies" was somewhat different from the situation today. The hon. Gentleman knows that in another capacity in earlier years I acted for many small companies, and I wish to declare an interest, since I have a few shares in one or two small companies.
I wish to make clear at the outset of my reply that I have always had a great deal of sympathy for the small company, particularly the small trading company, and the valuable part which it can play in our economy.
The hon. Member for Basingstoke told the Committee why the small business was different, and other hon Members have mentioned some of the problems involved. I was asked about the cost of the amendments, and my answer is based on very provisional estimates. At present there is insufficient information to know what the impact of stock relief will be on small companies. However, let me give the provisional figures. In regard to Amendment No. 44 if we reduce the rate of tax from 42 per cent. to 40 per cent., the estimated cost—and this is very provisional—would be £12 million in 1975–76 and £15 million in a full year. In regard to Amendment No. 45, which seeks to reduce the rate to 39 per cent., the cost would be £18 million in 1975–76 and £23 million in a full year.
We have heard a great deal about the problems of small companies, and I accept that many small companies are at present facing difficulties. The hon. Member for Norfolk, South (Mr. MacGregor) made some interesting points. He was not making a case for a reduction in the rate of corporation tax, but was stating the many other problems which face small companies and, as usual, he was very fair in his comments. Those companies are not going into liquidation because they are paying the 42 per cent. rate of corporation tax. The reason is that they are not making any profits. They are more likely to be making losses because of their increased costs and the squeeze of the big companies forcing small companies to wait for payment. I am aware of that problem. However, it is different from the reduction of tax from 42 per cent. to 40 per cent. or 39 per cent.

Mr. MacGregor: I made that point. This amendment is important because of the confidence it would give small companies to know that their problems are recognised. It is also important as regards the future cash flow of other companies. Those companies will find themselves in the situation I have already described unless something is done to aid their cash flows.

Mr. Barnett: I shall come to that question in a moment. I doubt whether a reduction in the rate of tax from 42 per cent. will help small companies. We know the definition of small companies under the classical system. We mean companies with profits of up to £25,000.

Mr. Crawford: The squeeze by the big companies on small companies has nothing to do with with the profits of small companies. However, it has everything to do with the cash flows of those companies.

Mr. Barnett: I shall now deal with the problem of companies' cash flows, as the hon. Gentleman seems to want to rush me. We are dealing more discriminatingly with that problem by helping trading companies with cash flow problems. The effect of the amendment would be felt by trading, non-trading and small companies alike. The reason is that small companies are facing trading and stock inflation problems. Those problems also apply to small companies in Scotland. We are helping those companies by means of the stock relief. We have thereby helped the trading companies more than they would be helped with this kind of amendment. The Government have done what they promised to do. We have given stock relief to small companies. We have also given an additional 5 per cent. bonus.

Mr. David Mitchell: Will the Financial Secretary accept that there are many trading companies which do not benefit from stock relief? Are the Government prepared to accept an amendment such as this if it applies only to trading companies? That would seem to fit in with the logic of the argument of the Financial Secretary.

Mr. Barnett: I do not know what the hon. Gentleman means by trading companies. Does he mean trading companies without stock or work in progress?

Every such company will be helped by stock relief. If he means investment companies—those which will be helped by the imputation system—I cannot go along with that. That is one of the major reasons why I preferred the classical system of corporation tax. The amendment indiscriminately helps small companies with profits below £25,000, including investment companies, property companies and other companies with that size of profit. The old classical system helped the close companies right the way up the line. Those companies sought to plough back their profits, to help their employees and everyone else in the country. That type of company was better.
We have not got that system. We have the imputation system, and we must do the best we can with it. Inside that system the problems referred to by hon. Gentlemen, many of them not specifically relating to the level of corporation tax but more to the problems of inflation and the present economic and industrial difficulties, are more specifically helped in my view by the stock relief. We may disagree about this.

Mr. David Mitchell: indicated dissent.

Mr. Barnett: I see that the hon. Gentleman disagrees. With respect, I suggest that the stock relief goes directly to those trading companies with inflation problems which affect their stock and work in progress. As opposed to that, the amendment would give the amount of money, which I have provisionally estimated, to small companies with profits below £25,000 whether or not they are trading companies with stocks or work in progress. In my view, that is not the best way to deal with the problem.
I come back to the major problem facing us. The hon. Member for Basingstoke said that if we reduce our tax revenue by £18 million or £15 million, or whatever the figure will be, it can be taken by increasing VAT to 10 per cent. The hon. Gentleman and his hon. Friends will take almost everything by increasing VAT to 10 per cent. I can list many things that they have promised to be able to obtain by increasing VAT to 10 per cent.
We must deal with the amendment as it stands. In my view, to increase further a borrowing requirement at £9,000 million, which is what the amendment would do, would be irresponsible at this time. I must


therefore advise my right hon. and hon. Friends to resist the amendment.

Mr. David Howell: I thank the Under-Secretary of State with responsibility for small businesses, the hon. Member for Rutherglen (Mr. Mackenzie), for sitting in on our debate. I have never had the pleasure of debating with him, but I have noticed over the last year that whenever Treasury Ministers are busy telling us why the small business sector must be further damaged or why they cannot help, he slips in silently and sits beside his colleagues and then silently, and perhaps sadly, goes away. This has been the story of his life in the last year, and small businesses have gone steadily down the escalator to greater and greater difficulties.
The record of Treasury Ministers and of the Chancellor of the Exchequer over the last 15 months on the smaller end of business in this country will go down in economic history as a see-saw record of dithering, of change of tack, of hitting and picking up and then hitting again. It makes the most remarkable reading even now when it is fact.
I agree with the Chief Secretary that in Clause 49 there is some element of relief or lightening of one part of the burden. However, the story so far, which is familiar, has been that in March 1974 the economy was declared to be flush with cash and small businesses were severely penalised. In July the Chancellor changed his mind and relief was brought, but postponed for small businesses. In February this year the small business sector took the capital transfer tax between the eyes. Indeed, how telling was the story by my hon. Friend the Member for Basingstoke (Mr. Mitchell)—the first I have heard with such graphic detail—of the firm which failed because of capital transfer tax. It will not be the last. We shall hear of many more.
I shall often think of the bland and confident assurances given by the Chief Secretary and the Financial Secretary that small businesses would not be hurt by the capital transfer tax. They will be hurt harder and life will be more difficult for that reason, let alone any other difficulties which may come along.
In March, the self-employed contribution was jacked up and that no doubt

hurt many small businesses. In April we had the Budget, with its help in Clause 49, but no sooner had the patients been taken out of bed than they were hauled back in again by increased VAT and increased rents.

9.45 p.m.

Mr. David Mitchell: I hope that my hon. Friend will not allow himself to be persuaded by the Chief Secretary that the help which is given under Clause 49 is as widespread and generous as the Chief Secretary suggests. There are many companies whose financial resources are so strained that they are unable to increase the value of work in progress or stocks and are not beneficiaries. Repairers and similar firms do not come into the category of firms in which stock is a major item.

Mr. Howell: My hon. Friend need have no fear. I shall take a lot of persuading that anything substantial and positive has been done for small companies and small firms. When we debate Clause 49 we shall go into that in detail.
In the meantime, even while that potential advantage is offered, small companies are again flattened by the higher rate of VAT and the large rate increases that are being demanded right across the country. This would be a matter just for regret and perhaps for some political protest were it not for the sheer size and importance of the problem. We are dealing with the 25 per cent. of the GNP represented by firms having fewer than 200 employees. We are dealing with the 33 per cent. of jobs which are to be found in small firms and small companies. These are the people who have a cash flow problem. The Chief Secretary said that the amendment would not help in that respect, but I am not so sure about that. Even if he is right, I am not sure that that is an argument for taking a negative view of the amendment.
The amendment, both psychologically and directly would assist many firms which are in difficulties. There is the cost, which is £15 million in a full year for Amendment No. 44, and more for Amendment No. 45. The Chief Secretary points to the fact that that would reduce the revenue. But let us get this in perspective. This is small beer. It is minute when set against the daily commitments being undertaken by the Secretary of


State for Industry. It is peanuts compared with the daily bill that is being generated by the enormous increases in public sector pay which are being financed by Government and less and less covered by genuine savings as the days go by and as the printing presses gather speed. It is almost microscopic compared with the £9 million requirement, if that is a figure in which we can have the least confidence. Compared with all the other Government spending plans the cost fades away into nothingness.
Even if it would not be covered by additional revenue from a 10 per cent. rate of VAT it would substantially be covered. Even if it were not, how much better to spend a little money in this area than the vast sums which are being poured casually and with political motivation into other areas in the name of job saving.
It is in this area, where 33 per cent. of the jobs in the country exist that jobs will have to be saved. It is in this area that the first wave of flack damage and penalty will be suffered as the economic situation deteriorates. It is in this area that job savings should be a pre-occupation, not in other areas.
These are the people who are threatened by high taxation and high inflation. I do not know where they fit into the pattern of the Secretary of State for Industry. I sometimes feel like asking him whether he ever stops between speeches and articles on the need for more industrial investment—about £6,000 million—to worry about firms that are being hit daily and mulcted of all the profit they can make to advance his special plans. I do not know whether the right hon. Gentleman asks himself that question.
If he were to ask it, I can tell the Committee his answer. His answer—he would never say it here, but it comes over from everything else the Government say—is that these people are expendable. They are not "our people",

they do not belong to the useful sector of the economy. They are not part of the previous and now destroyed social contract. Despite the sincere efforts which have no doubt been made by the Minister who is responsible for small businesses, these people have been neglected, damaged and destroyed as the shutters begin to go up in the High Street.

However popular the Secretary of State for Industry or Treasury Ministers may be with some of the big battalions as job preservers, among some of those concerned with small businesses, as my hon. Friend the Member for Basingstoke and others will testify, the Secretary of State for Industry is the apostle of unemployment. These people are seen as second-class citizens and they are going to the wall. We have tried politeness on the Treasury. We have tried talking, which is difficult when the Chief Secretary is not even listening. We have tried pleading and we have tried to emphasise by shouting the fact over the last 12 months. We have tried prayers, but we have not tried, in spite of what my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) said, crawling across the floor of the Chamber. We have tried everything else—

Mr. Crawford: The hon. Member says that he has tried everything. Why did his party not support the SNP in the vote against the Government on the Budget?

Mr. Howell: The Scottish National Party might also care to support the main Opposition in their attempt to overthrow a Socialist Government which rules by a minority in the House.
We have tried all these things, and I now advise that we try votes here tonight and in the country in due course to reverse this philosophy and to save the small businesses of this country.

Question put, That the amendment be made:—

The Committee divided: Ayes 133, Noes 151.

Division No. 212.]
AYES
[9.52 p.m.


Adley, Robert
Brittan, Leon
Cooke, Robert (Bristol W)


Arnold, Tom
Buchanan-Smith, Alick
Cope, John


Atkins, Rt Hon H. (Spelthorne)
Burden, F. A.
Cormack, Patrick


Awdry, Daniel
Butler, Adam (Bosworth)
Corrie, John


Benyon, W.
Carlisle, Mark
Costain, A. P.


Berry, Hon Anthony
Chalker, Mrs Lynda
Craig, Rt Hon W. (Belfast E)


Boscawen, Hon Robert
Clark, Alan (Plymouth, Sutton)
Crawford, Douglas


Bowden, A. (Brighton, Kemptown)
Clegg, Walter
Crouch, David




Dean, Paul (N Somerset)
Kellett-Bowman, Mrs Elaine
Raison, Timothy


Douglas-Hamilton, Lord James
Kershaw, Anthony
Rees, Peter (Dover &amp; Deal)


Drayson, Burnaby
Kilfedder, James
Renton, Rt Hon Sir D. (Hunts)


Dykes, Hugh
King, Evelyn (South Dorset)
Ridley, Hon Nicholas


Edwards, Nicholas (Pembroke)
Kitson, Sir Timothy
Ross, William (Londonderry)


Elliott, Sir William
Langford-Holt, Sir John
Rossi, Hugh (Hornsey)


Emery, Peter
Lawrence, Ivan
Sainsbury, Tim


Evans, Gwynfor (Carmarthen)
Lawson, Nigel
Scott-Hopkins, James


Eyre, Reginald
Le Marchant, Spencer
Shaw, Giles (Pudsey)


Farr, John
Lester, Jim (Beeston)
Shepherd, Colin


Fisher, Sir Nigel
MacCormick, Iain
Sims, Roger


Fletcher-Cooke, Charles
McCrindle, Robert
Skeet, T. H. H.


Fowler, Norman (Sutton C'f'd)
McCusker, H.
Speed, Keith


Gilmour, Sir John (East Fife)
Macfarlane, Neil
Spence, John


Goodhew, Victor
McNair-Wilson, M. (Newbury)
Spicer, Michael (S Worcester)


Gow, Ian (Eastbourne)
Marshall, Michael (Arundel)
Sproat, Iain


Grant, Anthony (Harrow C)
Mather, Carol
Stainton, Keith


Gray, Hamish
Maxwell-Hyslop, Robin
Stanbrook, Ivor


Grimond, Rt Hon J.
Mayhew, Patrick
Stewart, Donald (Western Isles)


Hall, Sir John
Miscampbell, Norman
Stewart, Ian (Hitchin)


Hamilton, Michael (Salisbury)
Mitchell, David (Basingstoke)
Stradling Thomas, J.


Hampson, Dr Keith
Moate, Roger
Taylor, Teddy (Cathcart)


Hannam, John
Molyneaux, James
Tebbit, Norman


Harrison, Col Sir Harwood (Eye)
Morgan, Geraint
Thompson, George


Havers, Sir Michael
Morris, Michael (Northampton S)
Townsend, Cyril D.


Hawkins, Paul
Morrison, Hon Peter (Chester)
Tugendhat, Christopher


Hayhoe, Barney
Nelson, Anthony
Viggers, Peter


Henderson, Douglas
Neubert, Michael
Weatherill, Bernard


Holland, Philip
Newton, Tony
Welsh, Andrew


Hooson, Emlyn
Nott, John
Wiggin, Jerry


Hordern, Peter
Onslow, Cranley
Wigley, Dafydd


Howell, David (Guildford)
Page, John (Harrow West)
Wilson, Gordon (Dundee E)


Howell, Ralph (North Norfolk)
Page, Rt Hon R. Graham (Crosby)
Winterton, Nicholas


Hunt, John
Pardoe, John
Younger, Hon George


Irvine, Bryant Godman (Rye)
Parkinson, Cecil



James, David
Percival, Ian
TELLERS FOR THE AYES:


Johnson Smith, G. (E Grinstead)
Powell, Rt Hon J. Enoch
Mr. Richard Luce and


Kaberry, Sir Donald
Prior, Rt Hon James
Mr. Russell Fairgrieve




NOES


Archer, Peter
Edge, Geoff
Lewis, Ron (Carlisle)


Armstrong, Ernest
Ellis, John (Brigg &amp; Scun)
Loyden, Eddie


Ashton, Joe
Ellis, Tom (Wrexham)
Lyons, Edward (Bradford W)


Atkinson, Norman
Ennals, David
Mackenzie, Gregor


Barnett, Guy (Greenwich)
Evans, Ioan (Aberdare)
McNamara, Kevin


Barnett, Rt Hon Joel (Heywood)
Evans, John (Newton)
Madden, Max


Bates, Alf
Ewing, Harry (Stirling)
Magee, Bryan


Benn, Rt Hon Anthony Wedgwood
Fletcher, Ted (Darlington)
Mahon, Simon


Blenkinsop, Arthur
George, Bruce
Marks, Kenneth


Boardman, H.
Gilbert, Dr. John
Maynard, Miss Joan


Booth, Albert
Ginsburg, David
Millan, Bruce


Brown, Hugh D. (Provan)
Golding, John
Miller, Dr M. S. (E Kilbride)


Brown, Ronald (Hackney S)
Gould, Bryan
Miller, Mrs Millie (Ilford N)


Callaghan, Jim (Middleton &amp; P)
Gourlay, Harry
Mitchell, R. C. (Soton, Itchen)


Campbell, Ian
Grant, George (Morpeth)
Morris, Charles R. (Openshaw)


Canavan, Dennis
Grant, John (Islington C)
Murray, Rt Hon Ronald King


Carmichael, Neil
Hamilton, James (Bothwell)
Newens, Stanley


Carter, Ray
Hardy, Peter
Noble, Mike


Carter-Jones, Lewis
Harper, Joseph
Oakes, Gordon


Cartwright, John
Harrison, Walter (Wakefield)
Ogden, Eric


Cocks, Michael (Bristol S)
Hatton, Frank
O'Halloran, Michael


Cohen, Stanley
Hayman, Mrs Helene
O'Malley, Rt Hon Brian


Coleman, Donald
Heffer, Eric S.
Ovenden, John


Conlan, Bernard
Horam, John
Park, George


Corbett, Robin
Hoyle, Doug (Nelson)
Parry, Robert


Cox, Thomas (Tooting)
Huckfield, Les
Peart, Rt Hon Fred


Craigen, J. M. (Maryhill)
Hughes, Rt Hon C. (Anglesey)
Prescott, John


Crawshaw, Richard
Hughes, Mark (Durham)
Roberts, Albert (Normanton)


Cronin, John
Hughes, Robert (Aberdeen N)
Robertson, John (Paisley)


Crosland, Rt Hon Anthony
Hughes, Roy (Newport)
Roderick, Caerwyn


Cryer, Bob
Irving, Rt Hon S. (Dartford)
Rodgers, George (Chorley)


Cunningham, G. (Islington S)
Jackson, Miss Margaret (Lincoln)
Rooker, J. W.


Cunningham, Dr J. (Whiteh)
Janner, Greville
Roper, John


Dalyell, Tam
Johnson, Walter (Derby S)
Rose, Paul B.


Davidson, Arthur
Jones, Alec (Rhondda)
Rowlands, Ted


Davies, Ifor (Gower)
Jones, Barry (East Flint)
Ryman, John


Dean, Joseph (Leeds West)
Jones, Dan (Burnley)
Selby, Harry


de Freitas, Rt Hon Sir Geoffrey
Kaufman, Gerald
Sheldon, Robert (Ashton-u-Lyne)


Dempsey, James
Kerr, Russell
Silkin, Rt Hon John (Deptford)


Doig, Peter
Kilroy-Silk, Robert
Sillars, James


Dormand, J. D.
Kinnock, Neil
Small, William


Douglas-Mann, Bruce
Lamborn, Harry
Spearing, Nigel


Dunn, James A.
Lamond, James
Spriggs, Leslie







Stallard, A. W.
Walker, Harold (Doncaster)
Wilson, William (Coventry SE)


Stewart, Rt Hon M. (Fulham)
Walker, Terry (Kingswood)
Wise, Mrs Audrey


Stott, Roger
Ward, Michael
Woof, Robert


Taylor, Mrs Ann (Bolton W)
Watkins, David
Young, David (Bolton E)


Thorne, Stan (Preston South)
Weetch, Ken



Tinn, James
Wellbeloved, James
TELLERS FOR THE NOES:


Tomlinson, John
White, Frank R. (Bury)
Mr. David Stoddart and


Urwin, T. W.
White, James (Pollok)
Miss Betty Boothroyd.


Wainwright, Edwin (Dearne V)
Whitlock, William

Question accordingly negatived.

Clause 25 ordered to stand part of the Bill.

Clause 28

ALTERATION OF PERSONAL RELIEFS

10.0 p.m.

Mr. Lawson: I beg to move Amendment No. 46 in page 18, line 32, after '(1)', insert:
'Subject to subsection (4) below,'.

The Chairman: With this, we may discuss the following amendments:
No. 50, in page 19, line 1, after '(2)', insert:
'Subject to subsection (4) below,'.
No. 51, in page 19, line 4, after '(3)', insert:
Subject to subsection (4) below,'.
No. 52, in page 19, line 8, at end add:
'(4) If, at a relevant anniversary, the official Retail Price Index shall rise above that obtaining on 5th April 1975, the Treasury shall, by Order, substitute for the following amounts specified in this section—

(a) £955 in subsection (1)(a)
(b) £675 in subsection (1)(b)
(c) £280 in subsection (2)
(d) £180 in subsection (3)(a)
(e) £360 in subsection (3)(b)

such higher amounts as shall have the same purchasing power (calculated by reference to that Index) as the corresponding amounts above had on 5th April 1975.
(5) For the purposes of this section, a relevant anniversary is the end of the year beginning on 6th April 1975 and the end of each subsequent year.'.

Mr. Lawson: These amendments, of which Amendment No. 52 is the amendment of substance, are again amendments to index the personal allowances. It is the most elegant of the various indexation amendments which have been drafted and put on the Notice Paper, although I

think in retrospect it is capable of improvement.
Basically, the idea of the amendment is that the various personal allowances—the single allowance, the married allowance, the widow's allowance and the allowance for blind persons—should remain as they are for the current financial year but that for subsequent financial years each year should be increased according to the rise in the retail price index.
It will be interesting if the Minister can give the Committee some idea of what the amendment would cost. If he can do that, we shall then know what the rate of inflation will be over the coming year. I am sure that that information will be useful to the Committee.
This is an indexation amendment the wording of which has been taken from Schedule 5 of the last Finance Act, and it usefully provides a mechanism whereby each year there can be the appropriate increase in these allowances, as is only equitable and right.
I will not go over the arguments for indexation again. The Committee has heard them at some length. I suspect that a better mechanism might be that used in Canada where they relate the average consumer price index for the twelvemonth period ending a few months before the tax year to the corresponding average for the twelve-month period on a base year and get an inflation factor which can be written into the allowances concerned. This provides an inflation element which lags a little behind the rate of inflation but which moves along an average sufficient for the Canadians to even up fluctuations in the ordinary price analyses and which also enables them to make the necessary calculations for PAYE and other purposes in terms of what the allowances should be.
The advantages of indexation have been deployed by various hon. Members. It is clear that the argument has been won by those who support it. Only two objections were raised by the Minister of State in reply to earlier debates.
The hon. Gentleman said that there might be problems of anticipation. By that he seemed to envisage that, if indexation were introduced, the trade unions would decide suddenly that this meant that inflation would be much worse and that they ought to put in big wage claims. Certainly the absence of indexation has not caused moderation in wage claims, whether or not they are the factor which causes inflation. If anything is likely to cause an acceleration in wage claims, it is the thought that there may be a statutory incomes policy or a wage freeze in the offing. Then certainly there would be problems of anticipation. It may be that the hon. Gentleman had that in mind and that his argument got slipped into the wrong context.
The other argument of the Minister of State was that indexation would be justified if we were in a period of high and continuing inflation, but we were not. I suspect that most hon. Members think that we are in a period of rather high inflation. Anyone with any understanding of the way that the economy works will know that it will not be brought down over night. Even if, as we hope, it starts going down later this year there will be continuing inflation at a high rate for some time to come.
It means, therefore, that the conditions which the Minister said would be appropriate for indexation appertain at present. In view of that, I trust that he will accept the amendment.

Mr. Sheldon: We are going over almost the identical ground that we covered in an earlier debate. I noticed that the hon. Member for Blaby (Mr. Lawson) kept his remarks short because he felt that that was so.
He asked for the cost of these amendments. Perhaps I may give him some information on that, because we are now talking about the personal allowances, and the estimate we have is that it would cost an additional £1,200 million if the personal income tax thresholds were all increased this year sufficiently to keep their real value.

Mr. Lawson: If the hon. Gentleman will read the amendment he will see that, as I made clear in my remarks, it proposes no increase whatsoever this year. Only if at the end of this year there had

been an increase in the cost of living would there be an increase in allowances next year. There would not conceivably be any cost this year.

Mr. Sheldon: The hon. Gentleman asked me for the cost. Naturally I cannot provide a cost for the position next year, since nobody knows what it will be. Seeking to assist him as far as I am able, I gave him what would have been the cost had it applied to the current year, and that is the position.
The hon. Gentleman asked me one or two questions following on our further exchanges. Perhaps I may deal with those. He questioned the argument that I used on the earlier amendment about anticipation. The Committee will recall that we were at that moment discussing what would be the disadvantages of indexing, and I pointed out that, whatever one were to do in the way of framing an amendment to index allowances or thresholds, or whatever it might be, an attempt to force the Government to forgo some of its independent power of action must be self-defeating. We went into that at very great length, so I do not think it necessary to pursue the same matter further.
On the question of anticipation, since the hon. Gentleman raises it, the obvious example, as I said—indeed, as the hon. Gentleman the Member for St. Ives (Mr. Nott) said—was that the question of anticipation arises from the fact that trade unions have a function, and if it is to be said that as a result of an amendment carried in this Committee that increases are going to be automatic as a result of an indexing arrangement made, however it might be, the function of the trade unions is severely limited, as it removes some of the main purposes for which they act. That was the argument used by the hon. Member for St. Ives, with which I would agree.

Mr. Lawson: My hon. Friend the Member for St. Ives (Mr. Nott) was talking about the indexing of wages. In this amendment we are talking about the indexing of tax allowances.

Mr. Sheldon: But the hon. Gentleman drew me back to my earlier comments on anticipation and I had to reply with the cost of anticipation dealt with in that particular context, and this is what I said.
So, as I have said, and as the hon. Gentleman again repeated, there could be a case for indexing if we were so foolish as to accept a continual, high and regular level of inflation of a kind which we do not have at the present time and which the Government are determined not to have. In a situation such as exists in certain parts of the world the question of indexation would obviously become much more pressing and would receive much greater consideration. That time is not now, and I hope will never be, and in that case I see no need for indexation in the way that the hon. Gentleman has requested.

I believe that what we have at the present time is a willingness on the part of the Government to survey the position year by year, to make the changes based on the extent to which those allowances are eroded and to take into account at the same time the needs for revenue and the particular individual circumstances affected. Those are the factors taken into account by the Government. I think that is the right way to proceed and I would advise my hon. Friends not to accept the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 37, Noes 148.

Division No. 213.]
AYES
[10.15 p.m.


Arnold, Tom
Hampson, Dr Keith
Sims, Roger


Awdry, Daniel
Hooson, Emlyn
Skeet, T. H. H.


Carlisle, Mark
James, David
Smith, Cyril (Rochdale)


Chalker, Mrs Lynda
Kilfedder, James
Stainton, Keith


Clegg, Walter
Lawrence, Ivan
Stanbrook, Ivor


Cooke, Robert (Bristol W)
Lester, Jim (Beeston)
Townsend, Cyril D.


Cormack, Patrick
Mitchell, David (Basingstoke)
Wiggin, Jerry


Corrie, John
Morgan, Geraint
Wigley, Dafydd


Dean, Paul (N Somerset)
Morrison, Hon Peter (Chester)
Winterton, Nicholas


Evans, Gwynfor (Carmarthen)
Page, Rt Hon R. Graham (Crosby)



Farr, John
Pardoe, John
TELLERS FOR THE AYES:


Fisher, Sir Nigel
Rees, Peter (Dover &amp; Deal)
Mr. John Cope and


Gow, Ian (Eastbourne)
Renton, Rt Hon Sir D. (Hunts)
Mr. Nigel Lawson.


Gray, Hamish
Shaw, Giles (Pudsey)





NOES


Archer, Peter
Doig, Peter
Jones, Barry (East Flint)


Armstrong, Ernest
Dormand, J. D.
Jones, Dan (Burnley)


Ashton, Joe
Douglas-Mann, Bruce
Kaufman, Gerald


Atkinson, Norman
Dunn, James A.
Kilroy-Silk, Robert


Barnett, Guy (Greenwich)
Edge, Geoff
Kinnock, Neil


Barnett, Rt Hon Joel (Heywood)
Ellis, John (Brigg &amp; Scun)
Lamborn, Harry


Bates, Alf
Ellis, Tom (Wrexham)
Lamond, James


Benn, Rt Hon Anthony Wedgwood
Ennals, David
Lestor, Miss Joan (Eton &amp; Slough)


Blenkinsop, Arthur
Evans, Ioan (Aberdare)
Lewis, Ron (Carlisle)


Boardman, H.
Evans, John (Newton)
Loyden, Eddie


Booth, Albert
Ewing, Harry (Stirling)
Lyons, Edward (Bradford W)


Brown, Hugh D. (Provan)
Fletcher, Ted (Darlington)
Mackenzie, Gregor


Brown, Ronald (Hackney S)
George, Bruce
McMillan, Tom (Glasgow C)


Callaghan, Jim (Middleton &amp; P)
Gilbert, Dr. John
McNamara, Kevin


Campbell, Ian
Ginsburg, David
Madden, Max


Canavan, Dennis
Golding, John
Magee, Bryan


Carmichael, Neil
Gould, Bryan
Mahon, Simon


Carter-Jones, Lewis
Gourlay, Harry
Marks, Kenneth


Cartwright, John
Grant, George (Morpeth)
Maynard, Miss Joan


Cocks, Michael (Bristol S)
Grant, John (Islington C)
Millan, Bruce


Cohen, Stanley
Hardy, Peter
Miller, Dr M. S. (E Kilbride)


Coleman, Donald
Harper, Joseph
Miller, Mrs Millie (Ilford N)


Conlan, Bernard
Harrison, Walter (Wakefield)
Mitchell, R. C. (Soton, Itchen)


Corbett, Robin
Hatton, Frank
Morris, Charles R. (Openshaw)


Cox, Thomas (Tooting)
Hayman, Mrs Helene
Murray, Rt Hon Ronald King


Craigen, J. M. (Maryhill)
Heffer, Eric S.
Newens, Stanley


Crawshaw, Richard
Horam, John
Noble, Mike


Cronin, John
Hoyle, Doug (Nelson)
Oakes, Gordon


Crosland, Rt Hon Anthony
Huckfield, Les
Ogden, Eric


Cryer, Bob
Hughes, Rt Hon C. (Anglesey)
O'Halloran, Michael


Cunningham, G. (Islington S)
Hughes, Mark (Durham)
O'Malley, Rt Hon Brian


Cunningham, Dr J. (Whiteh)
Hughes, Robert (Aberdeen N)
Ovenden, John


Dalyell, Tam
Hughes, Roy (Newport)
Park, George


Davidson, Arthur
Irving, Rt Hon S. (Dartford)
Parry, Robert


Davies, Ifor (Gower)
Jackson, Miss Margaret (Lincoln)
Peart, Rt Hon Fred


Dean, Joseph (Leeds West)
Janner, Greville
Prescott, John


de Freitas, Rt Hon Sir Geoffrey
Johnson, Walter (Derby S)
Roberts, Albert (Normanton)


Dempsey, James
Jones, Alec (Rhondda)
Robertson, John (Paisley)




Roderick, Caerwyn
Stewart, Rt Hon M. (Fulham)
Wellbeloved, James


Rodgers, George (Chorley)
Stoddart, David
White, Frank R. (Bury)


Rooker, J. W.
Stott, Roger
White, James (Pollok)


Roper, John
Taylor, Mrs Ann (Bolton W)
Whitlock, William


Rose, Paul B.
Tinn, James
Wilson, William (Coventry SE)


Ryman, John
Tomlinson, John
Wise, Mrs Audrey


Sheldon, Robert (Ashton-u-Lyne)
Urwin, T. W.
Woof, Robert


Silkin, Rt Hon John (Deptford)
Wainwright, Edwin (Dearne V)
Young, David (Bolton E)


Sillars, James
Walker, Harold (Doncaster)



Small, William
Walker, Terry (Kingswood)
TELLERS FOR THE NOES


Spearing, Nigel
Ward, Michael
Miss Betty Boothroy and


Spriggs, Leslie
Watkins, David
Mr. James Hamiton


Stallard, A. W.
Weetch, Ken

Question according negatived.

Mr. Newton: I beg to move Amendment No. 49, in page 18, line 37, at end insert:
'(c) after paragraph (a) of subsection (1) there shall be inserted the following paragraph—
(aa) in the case of a claimant who is a widow, to a deduction from the income tax with which she is chargeable equal to the deduction specified in subsection (1)(a) of this section"'.

The Chairman: With this we may discuss Amendment No. 62, in page 18, line 37, at end insert:
'(c) after paragraph (a) of subsection (1) there shall be inserted the following paragraph:—
(aa) in the case of a claimant who is a widow and an employed earner, to a deduction from the income tax with which she is chargeable equal to income tax at the standard rate on £815,"'.

Mr. Newton: Both of these amendments refer to the position of widows under the tax system. They are a pair of amendments which in some senses go together with an amendment which I moved earlier in relation to the investment income surcharge and, in a way, with an amendment yet to come relating to the position of single women with dependent relatives, among others.
As I indicated in my remarks on the earlier amendment on the investment income surcharge, this series of amendments is an attempt to probe the Government's thinking and to enable some discussion to take place on the position of single women, divorced women and widows within our tax system and, to a lesser extent, within the social security system—although we cannot debate that system tonight.
One of these amendments is an expensive option for helping widows, and the other is a rather cheaper option. They are part of an operation which we hope will enable further discussion and thought to be given to this problem.
As I also indicated earlier, although the amendments refer only to widows we have in mind also other problems, particularly those of divorced and separated women, although they already have a certain degree of special treatment under the tax system, as the Minister of State indicated earlier.
Perhaps I might at once acknowledge that underlying this problem of widows is a problem which covers the whole tax system. That is the sheer weight of taxation and tax rates and the inadequacy of the personal allowances, which relate in that sense to our debates on indexation. Many of these problems would disappear if we did not have the very high rate of income tax starting at very low levels. The fact that on the whole over the last few years, and especially under the present Government, we have had rising rates of income tax combined with falling real thresholds of income tax, has made all these problems steadily worse. In that sense all the debates we have had this evening ultimately tie together, and very much along the lines that my hon. Friend the Member for Blaby (Mr. Lawson) has been elaborating.
Having said that, however, it is absolutely clear that we shall not get the Minister of State or any of his colleagues to agree to do anything particularly useful or dramatic as regards tax thresholds or rates at present. Though we might regret that, considering the situation in which the Government have landed themselves after 18 months it is very difficult to argue as strongly as we would like that they should cut taxation to the extent necessary to deal with some of these tax problems. That being said, we find ourselves trying to deal with the difficulties which arise for particular groups in our society given the situation that exists. That is the basic background to the amendments.
As regards widows, and indeed, other single-parent families—in cases where there are children—the Government have acted to help, very much along the lines that we urged in amendments last year. We welcome this.
The Government have acted to help in another part of the clause with the increased additional personal allowance for children. We can argue on another occasion—there will almost certainly be an argument—whether what has been done is adequate, whether it should go further and what might be done in the future. I do not want to launch on that argument at present, but it may be that


my hon. Friends will have something to say about that shortly. I want to concentrate on the fact that although something has been done to help widows and single-parent families where there are children, nothing further has been done to help widows who do not have dependent children. This group have their own particular and distinct problems, especially perhaps where they are also widows who are in earning employment, that is, who are earning something in addition to their widows' pensions.
10.30 p.m.
What cannot be denied is that there is a widespread sense of injustice and grievance among this group. During one of the election campaigns last year I was stopped in the street on a considerable number of occasions by widows who were in that position and were burning to tackle somebody—in this case a parliamentary candidate—about what they felt to be the injustice of their treatment. Whether or not that sense of grievance is justified, it exists, and it should be noted by Parliament.
I have no doubt that the Minister will have two basic points to make in reply. The first will be that widows' pensions, like other pensions, are taxable, and that he can see no good reason why they should be treated differently from other pensions and not remain taxable. Secondly, he will observe that widows are in a sense single people, and that they are treated by the tax system straightforwardly as single people. They attract the single person's allowance under the tax system. He will argue that their treatment is on all fours with that of other taxpayers, and that there is nothing much for us to worry about.
I have already indicated part of my answer, which is that the sense of grievance exists on a scale greater than that of other taxpayers who are single or who are pensioners, even though they have their own worries about the tax system. Although it is clearly true that in a literal sense a widow is a single person, it is not true in a sense that takes account of the social realities of the situation in which she finds herself. She is probably in a house left to her by her husband, or jointly owned, which is larger than she would have acquired if she had

always been single. She will have become used to a pattern of life which has more to do with her former married state than her widowed state.
These may not be wholly rational considerations. In a beautifully-organised, mechanical world she would perhaps be moved into a smaller house, and her pattern of life would be changed. But I take it that neither side of the Committee would argue for that. I do not think it a sensible way to approach the problem. We should take into account that a woman who has become single again after she has been married is not in exactly the same position as a woman who has never married. She will have special problems, a special pattern of life, special housing resulting from her former married state.
I have been talking about the social aspects. There are economic or incentive reasons for thinking that an answer by the Minister along the lines I have foreseen would be inadequate. Many widows who are earning, and who are often making a valuable contribution to the employment which they take, feel that it is barely worth while to work. Other wndows—I can think of some—are put off the idea of working altogether, however useful their contribution might be, because they feel that they would not see enough return from their work.
This partly arises from the fact that pensions are taxable, but also from the mechanics of the collection of tax through the PAYE system. It is not easy to see what to do about it. The effects are unfortunate. The Inland Revenue has no way of collecting income tax on a pension; although the pension is taxable, the thresholds are set more or less at the level to exempt anyone who has only the pension. There is no obvious way of collecting the tax on the pension as such.
I think that the Minister will agree when I say that when a widow goes to work her apparent marginal tax rate on the earnings from her employment seems to be excessively high and seems to start almost at once. What is happening is that the tax liability on the pension is being collected as if it were taxed on the earnings. I accept that this will still leave the widow at the end of the day in the same position as if she were a single


person with the same total income, but no other single person would ever see his tax collected in relation to such a small part of his income.
Most of us in the Committee, and certainly those who have an ordinary PAYE arrangement, see our tax collected in relation to our total income. I will not say that it seems relatively small, but we see the tax that is collected in terms of our total income. However, the widow sees her tax in relation to only a small part of her income which happens to be the earned part.
Leaving aside any rational calculation, that creates the psychological reaction that it barely seems worth having any earnings because of the huge amount of the deduction which appears to take place. This is a mechanical problem, but we are not dealing with mechanical people. We are dealing with people who have psychological reaction and worries. Many of them feel that it is not worth their while working, given the net advantage of their earned income. It would sometimes be difficult to argue that they are not right.
All I have done is to sketch the background to the problem. I do not want to go into a lot of statistical detail about certain cases. If we want to do anything about the problem—I hope that Ministers will share my desire to see that something is done if at all possible—there are four lines along which we can proceed. First, we could use tax thresholds. That would at least assist the problem. We already know that from experience. We have already referred to that matter in another debate and I will not press the point. For my part I do not see it as a practical solution.
The second line is that which the widows' organisations have pressed for—namely, the exemption of the widows' pension from tax. I am in sympathy with the case that is advanced for not proceeding further along the lines of exempting social security benefits from taxation. The case advanced by my right hon. Friend the Member for Crosby (Mr. Page) regarding widows' pensions is obviously very special. That would mean taking the course of exempting all social security payments from tax, by exempting old-age pensions as well as widows' pensions,

and putting them in line with unemployment pay and sickness benefit. I do not think that it would be easy to justify singling out widows' pensions for exemption.
I have general support for the tax credit system. I believe that it is generally more sensible to adopt the approach of making all social security benefits subject to tax so that we can move towards a rational system of bringing the social security system and the taxation system together.
I accept that to exempt the widows' pension from tax would not be a very satisfactory answer to the problem when the wider considerations are taken into account. I hope that the Minister will accept that I am being as frank as I can about that.
The third possibility is to find a way of altering the administration of the tax system to avoid the whole of the tax appearing to fall on a small part of the earnings. It would be helpful to find some way of collecting tax so that it appeared to fall on the whole rather than on part of the income, but it is difficult to see how precisely that could be done. It would certainly be less convenient for the Inland Revenue. It might change the psychology of the situation and would be a much less convenient way of paying tax for the people who are affected. It would mean their paying tax in a separate, and probably an annual, form with an assessment having to be made by the Inland Revenue.
The fourth possible line of approach is to give widows some additional personal allowance under the tax system and to try to raise the tax threshold for them over and above what has already been done in the clause to help those with children. I am talking primarily about those who do not have dependent children.
I come to the two amendments. Amendment No. 49 would give the widow the full married allowance. No. 62 is my minimum option. It would give a widow who is earning an additional tax allowance equal to half the difference between the single allowance and the married allowance. In other words, it would put the earning widow into a middle situation between the single person and the married person.
Clearly those two amendments are at the opposite ends of the scale. One would put widows in the position of married couples with a full married couple's tax allowance regardless of whether those widows were earning. That would be an expensive operation. A recent parliamentary answer told us that the cost of the proposal would be about £40 million.
Amendment No. 62 would be more restricted. It would give half the difference between the single and the married allowance to widows in employment and would cost a great deal less. It certainly would cost a good deal less than £18 million, although I have not an exact figure.
If I were forced to choose, I think I should choose Amendment No. 62 related to widows in employment, which is where the main incentive arises. I hope that the Minister will be prepared to accord the proposal a favourable response. The amendments present a range of possibilities along the lines of giving widows an additional personal allowance. I look forward to hearing a constructive reply by the Minister.

10.45 p.m.

Mr. Nicholas Winterton: I wish to direct my remarks to Amendment No. 62. If the Government accept the amendment, they will have the wholehearted consent of all hon. Members. Although it will lead to additional Government expenditure, if it can be so described, I am sure it will be welcomed in Parliament and in the country.
I know that Members of Parliament have received hundreds of letters from widows who have very strong feelings on this matter. These are working widows. Is it right that we should penalise the working widows for wanting to look after themselves and to maintain the standard of living to which they have become accustomed? They are the main and only bread winners. Their husbands are no longer with them. They are alone. I believe that the Committee owes them recognition.
My hon. Friend the Member for Braintree (Mr. Newton), in moving this amendment in a splendid fashion, indicated that the annual cost to the Government would be less than £18 million.

Although I am conscious of the need for restraint in public expenditure, I believe that this sum would be well spent.
The Government claim to be concerned about people and to have a social responsibility. I am convinced that there will be no brickbats from the Opposition. There will be only plaudits and praise from outside the House if the Government make this modest adjustment, which will assist a deserving section of the community.
Perhaps these people are suffering most at this time of superinflation, which—whether the Ministers on the Treasury Bench accept it or not—is to some extent the responsibility of the present Government. The Government will receive much support throughout the country if they meet this reasonable request.
How can widowed persons change their life style overnight? Why should they leave houses in which they have lived for many years and perhaps move away from areas in which they have their friends? That is the situation now faced by many widows.
Perhaps the Minister will ask why the Conservatives did not act when we were in power. I agree with the Minister. Why did not we act when we were in power? Many Members of the Conservative Party pressed the former Conservative Government to do something about this problem. However, that Government failed to do anything. The Government now have the opportunity of winning a few laurels. They have little enough now to offer the electorate. Here is a means by which the Government can improve their popularity, which has sunk to an all-time low. I hope that the Government will react to my plea.

Mr. Patrick Cormack: It would be churlish to begin without thanking the Government for what they sought to do for widows with children and for single-parent families. Those moves were in the right direction. We struggled to obtain a response from the Government and it would be discourteous not to acknowledge it. I do that gladly.
My hon. Friend the Member for Braintree (Mr. Newton) is to be congratulated on putting down the amendments and on moving them in a moderate way. I


accept what he said. I agree that of the two amendments the second is much the more feasible and practicable.
Perhaps the Minister will be unable to give us satisfaction this evening. It would be surprising, although pleasing, if he were able to do so. However, I ask him at least to consider the matter in consultation with the Chancellor and the other Treasury Ministers and to see whether they can find the necessary £18 million from elsewhere, so that this extremely deserving section of the population can be given a little more self-confidence. We all need a little more self-confidence.
Nobody is more deserving than the widows. No hon. Member who has been in the House for even a short time could be unaware of the real problems that face widows. The fact that those problems are particularly acute from women with children does not mean that they are absent from women without children. The real problem is high rates of tax and low thresholds.
What struck me as entirely apposite were the remarks made by my hon. Friend the Member for Braintree about the sense of grievance felt by widows. They feel that, having suffered real personal tragedy, often extremely suddenly, and having been plunged into a new way of life literally overnight, they are not helped as they should be by society.
I have been associated in some degree with the National Association of Widows. The Minister of State knows that, because he kindly received a deputation from that body a couple of months ago. Whether he is able to give us satisfaction tonight I do not know, but I am sure that he will agree about the sincerity of those women, the genuine difficulties they face and the real efforts they are making to draw attention in a moderate and reasonable way to their problems. They are not putting a pistol to the heads of the Government or politicians and saying, "There is only one way of helping us." They are asking us to look at the different ways which can be found to help them and to try to come up with a solution.
Perfection is rarely to be found in a back bencher's amendment, but I suggest that my hon. Friend the Member for Braintree has made a noble effort and that his solution in Amendment No. 62

is feasible and realistic, even at a time of economic stringency when the Government are, to my mind, squandering large sums of public money on such unnecessary items as food subsidies, which do not help widows as much as they should. I hope that between now and Report a serious search will be made for the money to be found and made available.
My hon. Friend the Member for Macclesfield (Mr. Winterton) talked about providing laurel wreaths for the Government. It is the first time that I have heard him cast himself in that rôle. The implication in his remarks was absolutely right. The Government would earn great gratitude from many people—there are over 2 million widows in this country—if they did something at this stage to ease their lot.
I endorse the remarks made by my hon. Friend the Member for Braintree. I underline what he told the Committee in such simple but graphic form and ask the Minister at least not to shut the door tonight.

Mr. Lawson: I congratulate my hon. Friend the Member for Braintree (Mr. Newton) on the way that he moved the amendment on this important issue and in particular on the formulation of Amendment No. 62. I do not expect the Minister of State to accept it straight away, but I am aware of what happened a year ago when my hon. Friend moved an amendment on the age allowance which at that time was rejected by the Government. They said that it was impossible, that they could not possibly do it, and so on. We now find that almost identically the same amendment, which I am delighted the Government have taken on board, has miraculously appeared in this year's Finance Bill. I hope that my hon. Friend will have the same luck with this amendment, in that, even though it will probably be rejected this time, because the Government are a bit slow, it will eventually appear in the Finance (No. 3) Bill, which cannot be long delayed.

Mr. Nicholas Winterton: July.

Mr. Lawson: This is a serious matter, because of the categories of people involved. Members of Parliament get many letters from different categories of people. There is no doubt that at present the position of widows stands out as one


where there is a unique and justified sense of grievance for the reasons given by my hon. Friend the Member for Braintree. It has been made harsher now—I hope that the Minister will take this into account—by the fact that in the Budget the tax rate has been increased from 33 per cent. to 35 per cent. It means that the widow who is earning will have 35 per cent. of her income taken away, and that is too much.
When calculations are made of the cost of this relief for those widows who are desperately trying to keep up a standard—not an exaggerated standard, nothing which should cause envious eyes to look harshly at them—and when they want to work and earn a little bit more and do a little bit better, so much is taken away in taxation that there is a severe disincentive and a sense of injustice, over and above the sense of grievance they already feel at finding themselves in widowhood.
If the amendment were accepted there would be more widows working and wishing to earn. The Revenue would be getting its taxation from this increased level of earnings and the net cost to the Exchequer would be considerably less—one cannot say how much less—than the gross cost. Present with us in the Chamber is the hon. Member for Islington, South and Finsbury (Mr. Cunningham) who played such an important part in the changing of the earnings rule for pensioners. Arguments similar to those advanced tonight were put forward on that occasion, and it would be as well to bear that fact in mind.
I therefore urge the Minister to give a favourable response to this amendment which was moved so ably by my hon. Friend the Member for Braintree.

Mr. Ryman: I shall seek, in a very brief speech, to urge the Government to view this amendment extremely sympathetically and to implement it if at all possible. Enough has already been said of the terrible plight in which widows find themselves. To that I would simply add a further aspect which has not yet been mentioned. In view of the profound grief of widowhood and the many financial pressures experienced by newly bereaved widows, there is no doubt that

it is a very good thing if they are able to go out to work. Unless a widow has young children or other family commitments which physically prevent her from going out to work, it is some consolation, albeit a small one, if she can occupy her time by working rather than by suffering more deeply, as would be the case, in a lonely word, alone without work. Therefore, from every point of view it is humane and sensible to encourage widows to work, not only for their health and well-being, but for the health and wellbeing of the community.
I am not sure whether it is correct that the cost of implementing this amendment is £18 million, but if it is, it is but a flea-bite. The Government should be able to find that sort of money from some other source. I suggest to the sponsors of the amendment that the wording is not broad enough. It should include widows who are both employed earners and self-employed earners. Large numbers of widows whom I know in the north-east of England seek to supplement their inadequate widows' pension by taking on very badly paid and humble self-employment of various kinds. If words such as I have mentioned were inserted in the amendment, it would be wider.
It is impossible to state forcibly enough the suffering of widows. The Government should act in this matter. The £18 million involved could easily be found from other sources.

11.0 p.m.

Mr. Newton: I am grateful for the support of the hon. Member for Blyth (Mr. Ryman). Can the Minister tell us more about the cost? I said that it must be less than £18 million. I base that on an answer by the Minister of State to my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) about the cost of increasing the personal income tax allowance for widows from the single person's allowance of £675, to £800 and £955 respectively. I am more interested in the former figure, because it is roughly the same as in my Amendment No. 62. The Minister said that the estimate for 1975–76 would be £18 million. That was for all widows, and my amendment relates only to employed earners, so the cost must be lower. The estimate of £18 million, therefore, not only not low;


it is probably significantly high. Perhaps the Minister will give us an estimate.

Mr. Sheldon: As my hon. Friend the Member for Blyth (Mr. Ryman) said, there is one omission in Amendment No. 62—that of the self-employed. There are some technical defects in the amendments, but I shall not pursue them. It is not worth while for any back bencher to spend time getting the technicalities absolutely right. So long as the intention is clear, that is what matters. But one important defect arises from the use in Amendment No. 49 of the words
a deduction from the income tax with which she is chargeable",
equal to that of a married man. I take it that the deduction with which the hon. Member for Braintree (Mr. Newton) is concerned is that which would make the personal allowance of a widow equal to that of a married man. In fact, the words would give a tax relief of £955, or three times the amount that I am sure he has in mind. We should know what we are talking about, in case someone should want these figures in a subsequent debate.
On the basis of what I am sure the hon. Member intends—there is a natural reluctance to give these estimates, because they must be rather sketchy—a rough estimate is that Amendment No. 49 would cost about £40 million and Amendment No. 62, £13 million. The present position is that a widow without dependents receives a single person's allowance, which is the same as for all other single, widowed or divorced people living on their own. The single allowance is increased from £625 to £675 under Clause 28. This is just over 70 per cent. of the allowance for the married man. If this amendment were carried it would mean that the widow would obtain a higher allowance than that of the widower.
I am always delighted to receive representations, whether from the hon. Member for Staffordshire, South-West (Mr. Cormack), who is very assiduous in these matters, or from other hon. Gentlemen, but I must try to correct some of the impressions given that this is a problem just for the one sex. It is a problem for both sexes. It makes for an all-round approach and a better understanding of our problems if we consider the emotional

anxieties, the grief, the worry and distress of the widower, as well as the widow. The adjustment process is clearly applicable to both.
The hon. Member for Braintree talked about the tax deductions under the PAYE system. As he rightly says, this is a mechanical problem. None the less it is a very difficult one. The difficulty arises, as he rightly points out, in that the present system is the only simple way to collect tax, but none the less the widow, seeing her pay-slip and comparing it with that of someone working side by side with her, sees that she is having to pay tax at a higher level than the other person, and feels a sense of grievance and injustice, in the way that the hon. Gentleman described.
Following a number of representations that have been made and thanks to the work of the representative organisations, to which I pay tribute, I think the reason for this apparent injustice is getting across; and anything that I can do to help I would wish to do, because this is a problem that is likely to remain with us. It may be that at some future date PAYE will be able to operate on the social security benefit itself, but that time is not yet. This would meet the mechanical points to which the hon. Gentleman refers, and it would deal with a number of other problems that we find in this and related fields.
The main burden of the amendment concerned the expense of running the home. This applies to men and women whose marriages end in divorce and separation just as much as to cases involving the decease of the partner of the marriage. We are more aware of these cases than the ordinary cross-section of the community, because we meet so many of them in our surgeries and in our constituency relationships. Despite the sympathy that naturally, obviously and necessarily goes out in these cases, they are very hard to relate to actual financial arrangements. Most of the problems are not capable of solution by financial arrangements, and the taxation system is one of the less successful ways of dealing with these questions of grief and the necessary sympathy involved.
We fix liability to tax according to very simple and very few criteria, which cannot be adjusted to take account of the many different circumstances normally required.


We fix it in accordance with the simple criteria of income and family commitments. These are very limited.
I was pleased to receive from hon. Members who spoke in the debate some acknowledgment of what we did in terms of the additional personal allowance for the single parent. The £280 is a substantial additional personal allowance, and to it must be added the children's allowance.
In 1960, the married allowance was 60 per cent. higher than the single allowance. By 1973 it had declined to a point where it was only 30 per cent. higher than the single allowance. In the current year we have restored the position a little by making the married allowance 41 per cent. higher than the single allowance.
The most important problem that we see for widows is the comparison with the working couple, where the wife's earned income allowance is added to the married man's allowance. It was introduced as far back as 1920 in order to encourage women to go out to work, or to remain at work. Some people consider the present system generous, even over-generous, in what it does, but in the PAYE system there is an operational need to have the same rate of allowance for all women at work, whether they are married or single. This has the incidental advantage of avoiding awkward questions of confidentiality about a woman's marital status.
The main issue is one to which we have referred in previous debates. It is that when we try to obtain assistance for those sections of the community in special need—and widows are in very great need because of the feelings of emotion naturally aroused—we find that increased allowances mean that most goes to those who have most. Once an allowance is made, those who have the most earnings or the highest income obtain the greatest benefit. The advantage of the social security system is that the benefit can go to those who most need it instead of to those who have most.
We have to ask ourselves what we are trying to achieve—

Mr. George Cunningham: The difference to which my hon. Friend has drawn attention is one which is not inherent in a taxation system, as against the social security system; it is due only to the fact

that we make reductions in the amount of taxable income instead of reductions in the amount of tax payable. If we were starting from scratch, we could and probably would have a system based on the second principle rather than the first, which would be more equitable.

11.15 p.m.

Mr. Sheldon: I may be tempted to follow my hon. Friend's argument in a moment. The problem arises in trying to decide what we are attempting to achieve. I suggest that what we are after is to maximise the aid to those widows who are in greatest need. The difficulty is that, ideally these debates should take place on matters concerning social security. It so happens that in this place Finance Bill debates tend to take place more frequently than do social security debates. Many hon. Members anxious to raise the point are forced to use the forum of the Finance Bill debate to try to achieve their aims. The difficulty we find ourselves in is that the social security system is far superior as a system of directing money to those in need. We have the widow's allowance, the widow's supplementary allowance, the widow's pension and the widowed mother's allowance. I shall be surprised if, over the years, we do not magnify these or make them even more precise instruments.
By comparison, income tax allowances provide the most crude method. Those who have the most receive the most. If we were to proceed in this way, refining the tax system to provide assistance to those in need, we would end up by having two sets of social security provisions. We would have the nonsense of a social security system via income tax and a social security system via the Secretary of State for Social Services. The second would be superior. The first would be an abomination and a nonsense.
This is what happens when we spend our time importing social security arguments into the Finance Bill rather than making use of the social security system. I do not believe that there is room for these two systems of social security—one crude and one complex, one involved and the other refined. Although we have to do much more for the widows I do not think it will be best done in the Finance Bill, and I ask my right hon.


and hon. Friends not to accept the amendment.

Mr. David Howell: The Committee will be grateful to my hon. Friend the Member for Braintree (Mr. Newton) for moving the amendment. We are particularly grateful to him for bringing forward Amendment No. 62, which has provided the background for a useful debate on this difficult area. It has brought forth a reply from the Minister which might be described as sympathetic, although that may be inaccurate, because it is hard to tell, when analysing the speeches of Treasury Ministers, whether they are a sign of better things to come or simply represent the Treasury digging itself in.
The Minister gave us, for the second time tonight, some excellent reasons why we should move as fast as possible towards a tax credit system and away from the mad merry-go-round of give and take which is causing so much worry and concern. I do not agree with his eulogy of the benefits of the social security system in helping to iron out the anomalies and injustices in our present distribution of income, the prosperity of the country and the good things of life. Even if I did, his conclusion is that the faster we move to a tax credit system the better.
The basic problem is caused by low and fixed thresholds, against very high personal taxation. We come up against the problem again and again, and before we end the debate it is worth putting on record the most telling figures circulated by Age Concern in a letter to the Chancellor. They remind us that the full flat rate pension income is now £603·20 a year. We are glad that the single person allowance has now been raised to £675 a year, which leaves room for about £1·38 a week to be earned before a widow in this position finds herself liable for tax. If there is a further increase in pension in December and no further adjustment in the single person allowance, that figure will be even smaller. In fact, it will be only a few pounds.
That would not be so bad if it were not for the fact that the starting point is now 35 per cent. This means that a widow with literally her first few pounds coming in over and above the flat rate pension incurs a 35 per cent. tax rate. I cannot believe that a marginal leap of

such an enormous size exists anywhere else. I have not examined the European systems closely, but I very much doubt it exists there.
It is an incredible thought that if one earns more than the £12 or £13 a week that comes in on the flat-rate pension, one third is immediately returned to the Inland Revenue. It is staggering. It is no wonder that when they come to our surgeries widows find it very hard to comprehend that the system is placing this penalty on them. The higher the standard rate, which has moved from 33 per cent. to 35 per cent., the more bitterly they feel this.
One realises the problems here set out by my hon. Friend the Member for Braintree and very reasonably by the Minister of State. While one would not expect an immediate yielding this evening, there is, nevertheless, a case for considering the whole matter sympathetically, which we shall expect to see done in due course.
The question of the cost has been raised. The Minister of State offers a figure of £13 million. Of course, it is easy for Oppositions to say, as each £10 million or £15 million comes up, that that is a very small sum. But heaven knows, it is small enough compared with the £9 billion borrowing requirement under the present Government. It is small, too, when compared with other expenditure in the public sector. One wonders how far that £13 million will go towards paying the next colossal public sector wage increase. I expect that it will be lost in the mad merry-go-round of higher and higher public sector wage settlements being financed by more and more Government spending. Against that, this £13 million is really a pathetic sum.
Despite that, however, we realise the importance of preserving the revenue. In spite of the fact that we have proposed other means by which the Government could raise revenue more effectively than they are doing under other clauses—for instance, VAT—we do not expect the matter to be pressed tonight. However, this is a sad little sum of money that is being withheld by the Government, compared with the enormous sums they are spending daily, even hourly, on other priorities which many feel are not so compelling or demanding.
In that spirit, therefore, we set the amendment before the Committee. I shall not advise my hon. Friends to press it to a Division, although it is up to them to decide what they wish to do. This is a matter which in due course will deserve a very high priority indeed.

Mr. Newton: I should like to make some brief comments. First, I thank the Minister once again for a thoughtful reply to my amendments—a reply which gives us at least some sense of hope for the future.
Secondly, I want to comment on the Minister's approach to the subject. I agree that the social security system is a more flexible instrument for channelling help to those in particular need. It does not always work as well as it should, but it is clearly more capable of doing it. I quarrel with the Minister on the question whether he is right to think that getting help to those in need is the only consideration. I suggest to him that creating a sense of justice among those who are taxed is also an important consideration to bear in mind, and that our present system manifestly fails to do that.
With the reservation that we may well wish to return to this subject at a later stage, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

To report Progress and ask leave to sit again.—[Mr Joel Barnett.]

Committee report Progress; to sit again tomorrow.

ADJOURNMENT

Motion made, and Question proposed. That this House do now adjourn.—[Mr. Pavitt.]

Orders of the Day — CONSTRUCTION INDUSTRY (NORTHERN REGION)

11.26 p.m.

Mr. T. W. Urwin: Now that the symbol of authority has been restored to its place after the Committee proceedings on the Finance (No. 2) Bill, I take some pleasure in addressing myself to the serious problems we have been developing in the construction industry in the Northern Region.
I wish to deal first with the general contracting situation which, as my hon. Friend the Under-Secretary of State for the Environment will recognise, forms a very important part of the work load in the construction industry. The situation is deteriorating as present contracts are rapidly running out with little prospect of those contracts being replaced by new ones. It may be said that this is due partly to loss of forward confidence in industry and commerce, with a consequent deleterious effect on the work load of the building industry. Certainly it is true that the other contributory factor is that of the extensive cuts in public expenditure.
The Department of the Environment's official index of general construction costs estimates that the regional total of work outstanding in the public sector, discounted at March 1974 levels, has fallen from roughly £268 million to £245 million. Work due to start has fallen from £70 million to £30 million. In the private sector there has been a marginal increase in the two categories, respectively, and the total acknowledged fall in forward orders shows a 42 per cent. drop, from £90 million to £52 million.
It has been said that in the Northern Region we have had the advantage of some quite substantial civil engineering contracts in the course of development, including Keilder, the Tyne-Tees aqueduct, the Tyneside Metro, the British Steel Corporation project at Redcar, and many others in connection with petrochemicals, which provide employment prospects. However, it must be recognised that this very fact of necessity distorts comparisons with earlier years from the point of view of the volume of general work available to building contractors in the region. The cuts in educational, social and public projects have been, to say the least, substantial.
I ask my hon. Friend to bear in mind that the Property Services Agency within his Department held back £51 million worth of work during the first six months of 1974, and that only £34 million of this has so far been released to tender. An increasingly severe situation has developed for a number of contractors in the Northern Region in the general contracting sector. This is having dire repercussions on their ability to employ building labour and to continue to provide


employment opportunities not only for existing work forces but for apprentices leaving school.
There has been a pleasurable increase in the private sector in the last few months, but it is difficult to estimate what the precise upturn will be. It is variously estimated that it will be between 33⅓ per cent. and 50 per cent. this year. My hon. Friend will accept that even though that is very acceptable it must be set against the catastrophic decline of about 50 per cent. in the private house building sector in the year up to 1974.
Building contractors and employees in the construction industry understandably set great store on the necessity to provide stability in the private sector. This, in common with the rest of the industry, enables them to plan their organisation and their work load and to maintain the vitally important continuity of employment about which we are all deeply concerned.
I ask my hon. Friend to consider the time lag which frequently occurs between the acceptance of a contract under yardstick approval and a firm's gaining access to the site. Apart from the difficulties which have arisen as a result of local government reorganisation, when the whole policy of some authorities was cast into the melting pot, there seems to be an unnecessarily long period between the promulgation of contracts and the starting of work. I ask my hon. Friend to use his good offices to ensure that the minimum delay occurs between the acceptance of tender and the contracting firm's gaining access to the site. An example can be quoted of one firm which gained access to a site late in 1974 when the site was designed in 1971. Many other examples of delays could be quoted which have the effect of accentuating the difficulties of providing employment.
My hon. Friend will know of certain representations which have been made about housing associations and that certain housing societies have sought to become housing associations. I could quote cases from Hartlepool and Sunderland which, it is claimed, are causing extensive delays, especially when the housing association has to buy land. My hon. Friend will be all too well aware of the declining work load in the construction industry in the Northern

Region, as in the rest of the country, as a result of the changed criteria for grants for modernisation which in the period 1971–74 provided a tremendous stimulus for employment in the Northern Region.
I do not ask my hon. Friend to use his good offices to increase the amount of money that is available, fully accepting as I do the major responsibility devolving upon the Government to solve the problem of inflation and fully realising, in that context, that it is virtually impossible to receive a further allocation of money in this regard. But it occurs to me that because of the feeling that has been created in the minds of many people about the reduction of grant it might be to the advantage of those concerned if the Department, through the good offices of my hon. Friend, were to conduct a publicity campaign to ensure that people are fully aware of their entitlements for the modernisation of their homes.
The sum and substance of my comments indicate that there is a contraction in the construction industry in the Northern Region. My colleagues and I who represent constituencies in the North lose no opportunity to remind all Government Departments about the dire unemployment situation in that area. We have the unenviable record of having been top of the unemployment league for too long a period, superseding Scotland and Wales, which are our traditional rivals in this field.
There are now 4,364 building craftsmen and 8,865 labourers unemployed in the North. The unemployment figure in the Northern Region is 7·6 per cent. Building trade workers account for more than 21 per cent. of the total unemployed in the area. The ridiculous situation facing people being thrown out of work is that for craftsmen there are only 301 vacancies—a ratio of 14·5 to 1—while for labourers the situation is infinitely worse, with 227 vacancies, representing a ratio of 39 to 1.
The position for school leavers is even more hopeless. Many of them have high hopes of being able to take up apprentices in the construction industry. I understand that building employers have a potential recruitment rate of apprenticeships of about 3,000 per year, but sadly, despite all the pressure which the


employers' federation is bringing to bear on its members, the intake of apprentices this year will be considerably less than in the average year.
The information provided by the material supplies section of the industry—the National Federation of Builders and Plumbers Merchants—is that after price adjustments the drop of material supplies in the North-East in 1974 represented the highest turndown for any region in the whole of Great Britain. The figures were minus 27·8 per cent., compared with minus 20·4 per cent. in the country as a whole. The figures for January and February—and especially February—of this year compared with the same period last year show a slight improvement, and that is considered to be due largely to the upturn in private housing.
I think that perhaps the saddest comment on the future is that an analysis which has just been made by the National Federation of Building Trade Employers of replies from a broad cross-section of its members shows that more than 60 per cent. of the firms in membership estimate that they are operating at three quarters or even less of their capacity. About 15 per cent. say that they are operating at half capacity or even less. The results of the inquiry have been supported by a recent survey carried out by the RIBA, which showed that one third of architects had no further work in view after the end of this July.
On Saturday I had the pleasure of addressing the conference of the regional organisation of the Union of Construction, Allied Trades and Technicians, of which I am a member. I told delegates that, despite their protests about increasing unemployment, they could not expect to be isolated from the effects of inflation and the necessity to win this important battle. They could not expect to stand aside from the struggle.
I also said that the construction industry suffers from far too many troughs and not enough peaks—that whatever the economic situation might be from time to time, it was morally wrong to throw people out of work and not be able to guarantee that they would be employed again. But it is also wrong for any Government not to be able to plan,

in whatever economic circumstances, a programme of construction which takes account of the requirement to build, each year, sufficient houses in both the public and private sectors and the hospitals, health centres, schools and all the other things which fit into the background of a social programme.
What both employers and the operative staff require is an adequate, planned construction industry which will guarantee a steady work flow for the people who have committed their working lives to it, to be able to provide all the things which people are entitled to expect, measured in terms of provision of construction work throughout the country and not just in the Northern Region.
In extremity, I suggest to my hon. Friend the Minister that he should consult his colleagues with a view to staving off further unemployment and taking up some of the slack in the construction industry, by introducing a crash winter works programme, such as was operated some time ago, with specific priority to development areas where the need is greatest.
I pay full tribute to my Government for allocating 16 new advance factories to the Northern Region, as a major development area, last year, but I ask my hon. Friend to consult his colleagues in the Departments of Trade and Industry to ensure that the construction work on those factories gets under way as quickly as possible. Not only will this programme be able to provide additional jobs for construction workers—craftsmen and unskilled people alike; it will speed the day when plant and equipment can be installed in those factories to make that additional contribution to the relief of unemployment in the region.

11.44 p.m.

The Under-Secretary of State for the Environment (Mr. Gerald Kaufman): My hon. Friend is known both in the House and in his region as an ardent champion of full employment. He has worked very hard for it on the Front Bench and on the back benches. He is an acknowledged expert on the construction industry, and it is fitting that tonight he should have concentrated on the problems of that industry—problems which no one can deny are extremely severe, not only in his region but throughout the country.


Only yesterday I saw a deputation representing Merseyside, which put to me the problems in the construction industry in that part of the country.
Unemployment in the construction industry is going ahead far faster than anyone can accept. It is 42 per cent. up on a year ago. The new orders won by contractors last year were 25 per cent. lower than in the year before, and total output was 8 per cent. lower. The decline in output has to be considered in the context of the boom period of 1972 and 1973, when the industry was grossly overheated. As my hon. Friend has said, there are to many peaks and too many troughs.
The symptoms showed most clearly in shortages of skilled men, large increases in tender prices and the difficulties that some local authorities found in obtaining tenders. The Conservative Government reacted by imposing a moratorium on the letting of public sector contracts in October 1973. That was rapidly followed, in December of the same year, by their very large cuts in public sector capital expenditure in 1974–75. Those are cuts from which the industry has never recovered. As construction accounts for a large proportion of capital expenditure, the industry has inevitably suffered.
Other factors combined to produce a depressing prospect for the industry. Local authority house building slumped because of the Conservative Government's policies. Both starts and completions in their last year of office fell pretty well to the lowest levels since the war. Added to that were the effects of the three-day working week. As we all know, they combined to have a significant impact on both output and confidence. A healthy state of demand for construction in the private sector depends on both, so the industry suffered.
Added to all this there was the prospect of a mortgage famine or a sharp increase in mortgage rates. When we came into office at the beginning of March of last year the outlook for the construction industry was bleak. We had to take measures to deal with that immediately. We injected an extra £350 million into public sector housing. In the financial year which has just ended there has been record expenditure on housing. It is 50 per cent. up on what was planned by

the previous Conservative Government. Under our Circular 70/74, which we issued soon after we took office, we encouraged local authorities to buy up new, completed, unsold private dwellings to encourage builders to continue building. We made a £500 million bridging loan to the building societies in an effort to increase their liquidity and to deal with the mortgage famine. In January of this year we introduced a package further to stimulate house purchase, including a scheme for new house purchases. Since then we have made a stabilisation agreement with the building societies to deal with any possible explosion in house prices and to deal precisely with the problem that my hon. Friend has mentioned. We made available an extra £100 million for public sector construction last summer. That is unaffected by the Chancellor's Budget cuts.
The result has been a marked increase in public sector house building. Private sector house building, as my hon. Friend has pointed out, has started to recover. The building societies are now flush with money. The mortgage rate has been frozen in the case of most societies, and public authorities have purchased 13,801 unsold houses.
Of course, all the national problems have had a great effect on the Northern Region. My hon. Friend has made clear the depressing picture which he sees in the region. I do not wish to minimise the problems that he has so movingly described. The Northern Region has consistently shown an unemployment rate in the construction industry higher than the average for Great Britain. Although the number of unemployed in the industry in absolute terms is far too high, unemployment has risen less fast than the national average. Whilst the national total is up 42 per cent., the north eastern region's total is up by 22·8 per cent.
There are some hopeful signs. The percentage was lower last month than the average in recent years, and the percentage of vacancies was higher. Although, as I have said, total new orders in 1974 fell, the Northern Region improved its percentage of the national total. Its percentage increased to a record level of 7·6 per cent. and these orders will


provide work on the ground for a considerable period ahead.
The situation is particularly encouraging in the private industrial sector, in which in 1974 the Northern Region accounted for 11·4 per cent. of all new orders. Half a million square feet of industrial buildings, provided through the English Industrial Estates Corporation, are due for completion in the region in 1975. This consists of 16 advance factories and 13 new buildings or extensions for existing firms.
I take my hon. Friend's point about the need to get advance factories started and I shall be contacting the appropriate authorities to find out the prospects. It is not good enough merely to say that it is necessary for these factories to be built.
Furthermore, there is a long list of major projects which will help the industry—projects which are under way or just starting and most of which will go on for three or four years. These include the Kielder Reservoir and Tyne-Tees Aqueduct—£70 million; the Tyneside metro, of which the construction element will be £60 million; the Tyneside Sewerage Scheme—£30 million; the Ekofisk Oil Terminal, Teesside—£100 million; ICI petro-chemical plants on Teesside—£50 million, approximately; the Eldon Square Shopping Development, Newcastle—£45 million; and the phased BSC Red-car complex—£1,000 million. While these schemes will provide little work for local contractors because the schemes are so vast, they will certainly stimulate substantial local employment.
There is an extensive programme of trunk road improvement in progress in the Northern Region. Work is currently being carried out on trunk road schemes worth over £50 million and further schemes, together costing about £22 million, are scheduled to start by the end of 1977. The local highway authorities have principal road schemes valued at about £40 million in progress and hope to start work on further schemes worth over £25 million by the end of 1977.
In my Department I am particularly involved with housing. My hon. Friend will be glad to know that the number of public sector dwellings in tenders approved is up from 92,000 in 1973 to

122,000 in 1974—an increase of 32 per cent. He will be even more pleased to know that the North-Eastern improvement is double that. Public sector dwellings in the North-East in tenders approved are up from 5,422 to 8,103—an increase of 64 per cent. The percentage increase of the national total is well up, and has risen from 5·9 per cent. to 7·3 per cent.
I wish to say to all local authorities in the North-East that one way of increasing building employment is by increasing local authority housing programmes, for which there is a 66 per cent. subsidy.
My hon. Friend referred to delays in PSA work. The value of PSA major new works at working drawing stage in the first six months of 1974, for which tenders were not invited in that period because of public expenditure restrictions, was £51 million. As my hon. Friend said, the position in March was that tenders had been sought for £34 million of this work. These projects are for the whole of the PSA operations and are not confined to the Northern Region. This work is being let by the PSA as quickly as it can, subject to client's requirements and subject to expenditure constraints.
My hon. Friend referred to procedural delays in local authority housing. My Department and the local authorities are conscious of the need to speed up the process and to avoid unnecessary delays. Delays occur due to pressures of work, and these are to be regretted. I assure my hon. Friend that it is the constant concern of the Department that the Northern Region should make progress on all schemes as rapidly as possible.
The Department's Circular 24/75 recommends new forms of procedures to speed up the work. We are currently engaged in discussions to promote these new policies.
As regards the housing association schemes, the problems of which my hon. Friend mentioned, the Housing Corporation has made no policy changes which might lead to delays in housing associations being able to proceed with schemes. As to Hartlepool and Sunderland, the proposed scheme at North Seaton has been delayed because of uncertainty about the future of the neighbouring iron works. The iron works has now


had a new lease of life and the corporation has rejected the proposal. However, it is finishing several schemes in Sunderland.
I assure my hon. Friend that the Government accept the need for publicity with regard to improvement grants in the view of the decline in applications for them. For the present, we are looking to local authorities to tailor local publicity to the needs of individual areas. In that connection we have made available copies of an explanatory booklet on

the new grants arrangements, together with publicity posters. We are at present considering the possibility of wider publicity measures to improve the grant take-up generally—

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at four minutes to Twelve o'clock.